After Obtaining an Initial Understanding of a Client's IT Controls

question 42

Multiple Choice

After obtaining an initial understanding of a client's IT controls, an auditor may decide not to perform tests of controls related to the control procedures within the IT portion of the client's internal control. Which of the following would not be a valid reason for choosing to omit tests of controls?

• A) The controls appear adequate.
• B) The controls duplicate operative controls existing elsewhere in the system.
• C) There appear to be major deficiencies that would preclude using the stated procedure as a basis to reduce the assessed level.
• D) The time and dollar costs of testing exceed the time and dollar savings in substantive testing if the tests of controls show the controls to be operative.

---

Definitions:

Good News

Information or updates that are positively received by stakeholders, potentially leading to an increase in stock price or improvement in business prospects.

Stock Returns

The gain or loss on a stock investment, typically expressed as a percentage, accounting for dividends, price appreciation, and splits.

Earnings Announcement

The public declaration of a company's profitability for a specific period, often impacting its stock price.

Credit Risk

The risk that a lender may not receive the owed principal and interest, leading to disrupted cash flows and increased costs for collections.