Chapter 6 Audit Strategies: Substantive vs. Reliance Strategy

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What is the main reason an auditor may follow the Substantive strategy (setting control risk high)?

To avoid having a good understanding of internal controls

To not rely on entity's controls but still understand the internal controls (correct)

To ensure efficiency in the audit process

To rely on entity's controls

Which limitation of an entity's internal control involves senior management forcing lower level employees to violate controls?

Reliance Strategy

Human Errors or Mistakes

Management Override of Internal Control (correct)

Collusions

In the context of an audit, what can cause system errors when humans are involved in designing, maintaining, or monitoring?

Collusions

Reliance on entity's controls

Human Errors or Mistakes (correct)

Segregation of duties

Why can segregation of duties be inefficient in the presence of collusions?

Collusions can work against the segregation of duties Signup and view all the answers

What strategy involves setting control risk at a lower level and relying on entity's internal control?

Reliance Strategy Signup and view all the answers

What is the main purpose of performing tests of controls during an audit?

To assess the effectiveness of the entity’s internal controls in detecting and correcting misstatements Signup and view all the answers

Which of the following is NOT one of the 4 types of tests performed to assess control risk?

Interviewing entity personnel Signup and view all the answers

What determines the extent of substantive procedures required during an audit?

Nature of transactions Signup and view all the answers

What is the primary focus of reports about controls at an external source (service organization)?

Evaluating the system's design and functionality Signup and view all the answers

Which type of controls are concerned with preventing errors and ensuring accuracy in transactions?

Data validation controls Signup and view all the answers

Chapter 6 Audit Strategies: Substantive vs. Reliance Strategy

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Questions and Answers

What is the main reason an auditor may follow the Substantive strategy (setting control risk high)?

Which limitation of an entity's internal control involves senior management forcing lower level employees to violate controls?

In the context of an audit, what can cause system errors when humans are involved in designing, maintaining, or monitoring?

Why can segregation of duties be inefficient in the presence of collusions?

What strategy involves setting control risk at a lower level and relying on entity's internal control?

What is the main purpose of performing tests of controls during an audit?

Which of the following is NOT one of the 4 types of tests performed to assess control risk?

What determines the extent of substantive procedures required during an audit?

What is the primary focus of reports about controls at an external source (service organization)?

Which type of controls are concerned with preventing errors and ensuring accuracy in transactions?

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