If inherent risk and control risk are assessed as low, how would an auditor most likely test depreciation expense?

• A. As a ratio of total assets.
• B. As a percent of sales.
• C. By flagging and tracing transactions through the system.
• D. By re-computing all depreciation figures.

Answer: (C)

When inherent risk and control risk are low, the auditor relies on the effectiveness of the depreciation process and tests the controls around it. The most efficient approach is to flag depreciation-related transactions that look unusual or require validation and trace them through the system—from the asset records and depreciation schedules to the journal entries and then to the general ledger and financial statements. This confirms that each depreciation amount is properly authorized, computed, recorded in the correct period, and that any disposals or changes in useful life are accurately reflected. Recomputing all depreciation figures would be unnecessarily thorough in a low-risk environment, and broad analytical checks like depreciation as a percentage of assets or sales provide only high-level evidence rather than confirming the accuracy of individual depreciation postings.