Auditors Follow a Four-Step Approach to Reduce Assessed Control Risk

question 23

Multiple Choice

Auditors follow a four-step approach to reduce assessed control risk. Which of the following is not one of the four?

• A) Apply transaction-related audit objectives to a class of transactions.
• B) Identify accounts that have high inherent risk.
• C) Identify key controls that reduce control risk.
• D) For potential misstatements, design appropriate substantive tests of transactions.

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Definitions:

Car Insurance

A contract between a vehicle owner and an insurance company, providing financial protection against physical damage or bodily injury from traffic collisions.

Asymmetric Information

An instance where in a transaction, one entity has higher or more detailed information than another.

Principal-Agent Problem

A dilemma in economics arising when one party (the agent) is able to make decisions and/or take actions on behalf of, or that impact, another party (the principal).

Moral-Hazard Problem

A situation where one party engages in risky behavior knowing that it is protected against the consequences, often because another party bears the cost of those actions.