[OneStepAwayCPA]

I am working a TBS on Becker software (Audit 3-Planning, Tab 2)

The question asks (#2): The client recently installed a new inventory

control system that reduces risk of theft. Whats effect on the audit?

Choices: Shift testing to interm, OR increase effectiveness of substantive

testing?

Answer is shift testing to interim, but why not increase effectiveness of

substantive testing? When would a increase or decrease effectiveness of

substantive testing be used? When RIsk Material Misstatement is High?

IF one of answer choices are “decrease effectiveness of substantive

testing”, when it be correct?

What is the difference of increase/decrease effectiveness of substantive testing.

[valueofnothing]

reduces risk of theft = can lesson the degree/amount of procedures to perform. one example given through review material is interem tests instead of end date tests. basically, the answer IS decrease the effectiveness of substantive testing.

REG - 81
BEC - 88
AUD - 85
FAR - 81

[kb24]

If the change given is a positive as far as IC i.e. reduced risk of theft, reduced risk of error, etc., it results in a reduction of control risk. Since AR = CR*IR*DR, a decrease in CR means that you can have increase in DR without changing AR. With an increase in allowed DR, you can do fewer substantive tests and can do testing earlier in relation to EOP.

If the change given is a negative as far as IC, it results in an increase in CR and therefore a decrease in allowable DR. Therefore, more extensive substantive tests are required and testing should occur closer to EOP.

If the answer had been decrease instead of increase substantive testing, it would have been a correct answer along with interim testing.

FAR 4/1/11 - 89
AUD 4/15/11 - 85
REG 4/29/11 - 80
BEC 5/13/11 - 85

[mla1169]

I think the trick here is that the client only recently installed the new system, so the auditor first has to decide whether the inventory control system can be relied upon as a control procedure. Until the auditor determins whether or not the system can be relied upon as part of internal control, he or she couldn't possibly determine whether to increase or decrease the effectiveness of substantive testing. One way to determine whether or not the system is an effective internal control would be to shift their testing to interim. If the auditor feels the control can be relied upon they may be able to decrease the substantive testing, or if the control is neither preventing or detecting misstatements the substantive testing would be increased.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[Author]

Replies