ACCA AA · Chapter 6 · Question 3 of 11
The auditor of Sorrel Co assesses inherent risk and control risk for inventory as high. How should the auditor respond?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Reduce detection risk by performing more extensive substantive procedures, such as larger sample sizes
Explanation
To keep overall audit risk at an acceptably low level, a high risk of material misstatement must be matched by low detection risk. This means more persuasive substantive evidence, larger samples and procedures closer to the year end. Relying on controls is inappropriate when control risk is high, and performance materiality would normally be lowered rather than raised.
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