The following are general questions about assessing control risk, testing controls, and reporting on internal controls. Choose the best response. 

a. During the planning stage of an audit, the auditor initially assessed both inherent risk and control risk at a high level. Further testing of the client’s internal controls led the auditor to reduce the assessment of control risk. Which of the following will most likely occur as a result? 

(1) The auditor may reduce the assessment of inherent risk to match the control risk, since they were assessed at the same level during the initial planning. 

(2) The auditor may decrease the allowed level of detection risk. 

(3) The auditor may rely solely on analytical procedures, with no substantive procedures performed. 

(4) The auditor may reduce the amount of substantive procedures performed. 

b. When assessing control risk, an auditor is required to document the auditor’s: 

c. Jefferson, CPA, has identified five significant deficiencies in internal control during the audit of Portico Industries, a nonpublic company. Two of these conditions are considered to be material weaknesses. Which best describes Jefferson’s communication requirements? 

(1) Communicate the two material weaknesses to Portico’s management and those charged with governance, but not the three significant deficiencies that are not material weaknesses. 

(2) Communicate all five significant deficiencies to Portico’s management and those charged with governance, distinguishing between material weaknesses and significant deficiencies. 

(3) Communicate all five significant deficiencies to Portico’s management and those charged with governance, but only require a management response with respect to the two material weaknesses. 

(4) Communicate all five significant deficiencies to Portico’s management and those charged with governance, without distinction among the deficiencies.

Transcribed Image Text:

Understanding of the Entity's Control Environment Basis for the Auditor's Risk Assessment (1) (2) (3) (4) Yes No No Yes Yes Yes No No