Auditing Assignment: Control Risk and Audit Testing

This auditing assignment delves into the crucial concept of control risk assessment and its influence on the quality and methodology of audits. The report begins by outlining the four levels of control risk assessment (Low, Moderate, High, and Maximum) and emphasizes the importance of calculating audit hours in relation to each sample. It then explores how the choice of control risk affects audit quality, highlighting the auditor's reliance on a company's internal controls. The assignment further examines scenarios where control testing results contradict substantive testing, explaining the differences between the two and the implications of such discrepancies. The report also addresses the auditor's course of action when misstatements are found despite a low control risk assessment, emphasizing the need for further investigation and potential reporting of internal control deficiencies. The analysis underscores the importance of a thorough understanding of control risk in the context of audit procedures and financial statement accuracy.

AUDITING ASSIGNMENT

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Prepared By
Student’s Name:
Date: 21st April, 2019

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Contents
Analysis........................................................................................................................................................3
References...................................................................................................................................................5
Analysis

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1)There are four level of CR assessment there which includes Low, Moderate, High and Maximum. To
assess the CR, we need to calculate the audit hours with respect to each of the sample.
2) The choice of control risk does affect the quality of audit. Control risk assessment is a measure of the
control elements that are applied by the management of the company and refers to the risk that in case
there is any misstatement in the financial statements then same can be prevented by the entity’s
internal control (Boghossian). So, if the CR assessment is high, the auditors will ensure that the overall
quality of audit is good and more precise audit methods are applied and in case the entity’s CR
assessment is low, which means that the internal controls are strong, so the auditors will apply normal
procedures. Thus, the dependency on the managements internal control can be assessed through the
level of CR assessment.
3) a) There might be a situation that the control testing indicates that the overall level of Control Risk is
low, and the internal controls are acting efficiently. Later when the audit is conducted it is found that
high level of risk is found in the financial statements of the company when they are tested substantively.
Thus, it means that when the test of controls is done it is done only to judge the effectiveness of the
controls that are applied by the management of the company. In no ways it indicates that the financial
statements are free of errors, substantive testing include testing of each item of the financial statement
differently, which may occur on several grounds. Test of controls are often done in samples and thus
there are chances that even though the risk of control as assessed is low but the misstatements in the
financial statements is very high. All this is attributed to the difference in the methods applied and the
fact that substantive testing is more analytical in nature, that is different than testing of controls
(Awasthi, Omrani and Gerber).
b) In case the auditor can find some misstatements in the financial statements, but the level of CR
assessment was low, in that the auditor needs to again check those controls that are related to those
misstatements and then take decision accordingly, based on its speculative audit procedures. In case
post that the auditor is able to judge that there is some issues involved with the quality of the control
assessment then the auditor needs to state the same in its audit report and state that the management

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has failed to ensure that proper internal control to be established and all the reasons for the
misstatement in the financial statements should be stated in details.
References

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Awasthi, A, H Omrani and P Gerber. "Investigating ideal-solution based multicriteria decision making
techniques for sustainability evaluation of urban mobility projects." Transportation Research
Part A: Policy and Practice 116.2 (2018): 247-259.
Boghossian, P. "The Socratic method, defeasibility, and doxastic responsibility." Educational Philosophy
and Theory 50.3 (2017): 244-253.