When Control Risk Is High the Audit Strategy Is To

question 59

Multiple Choice

When control risk is high the audit strategy is to:

• A) do little or no tests of controls and increase reliance on substantive testing of transactions and account balances
• B) assume the client's management is dishonest and immediately report them to ASIC
• C) increase reliance on tests of controls and reduce reliance on substantive testing of transactions and account balances.
• D) refuse to continue with the remainder of the audit due to the high risk of fraud

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Definitions:

External Financing Need

The gap between the funding a firm needs for its operations and investments, and the amount it can generate internally, implying the need to seek external funding.

Projected Growth Rate

An estimate of the rate at which a company's earnings or revenues are expected to grow in the future.

Sales Increases

A measurement of the rise in a company's sales over a specific period, indicating growth in business operations.

Capital Intensity Ratio

A metric used to determine the amount of assets required to generate a dollar of revenue; higher ratios indicate more assets are needed.