After obtaining an understanding of internal control and assessing the risk of material misstatement, an auditor decided to perform tests of controls. The auditor MOST likely decided that

• A. additional evidence to support a further reduction in the risk of material misstatement is not available
• B. it would be efficient to perform test of controls that would result in a reduction in planned substantive tests
• C. there were many internal control weaknesses that could allow misstatements to enter the accounting system.
• D. an increase in the assessed level of the risk of material misstatement is justified for certain financial statement assertions

Answer: (A)

The main idea being tested is relying on internal controls to shape audit evidence. After understanding how controls operate and assessing the risk of material misstatement, an auditor decides to perform tests of controls when there is a reasonable expectation that those controls are operating effectively and that evidence obtained about their operating effectiveness can justify relying on them. If the controls are found to be effective, the auditor can reduce the amount of substantive testing needed, increasing efficiency. That’s why the best option is the one describing performing tests of controls to obtain evidence that would lead to a reduction in planned substantive procedures.

If there’s no prospect that testing controls will produce evidence to lower the risk, or if there are pervasive control weaknesses that prevent reliance on controls, or if the situation would justify increasing the risk assessment for some assertions, those scenarios don’t align with why test-of-controls work after assessing control risk.