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Assessing Control Risk

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11-21 (Assessing control risk) An auditor is required to obtain a sufficient understanding of each
of the components of an entity's system of internal control to plan the audit of the entity's
financial statements and to assess control risk for the assertions embodied in the account
balance, transaction class, and disclosure components of the financial statements.

Required
a. Explain the reasons an auditor may assess control risk at the maximum level for one or
more assertions embodied in an account balance.

b. What must an auditor do to support assessing control risk at less than the maximum
level when the auditor has determined that controls have been placed in operation?

c. What should an auditor consider when seeking a further reduction in the planned
assessed level of control risk?

d. What are an auditor's documentation requirements concerning an entity's system of
internal control and the assessed level of control risk?

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The response addresses the queries posted in 860 words with references.

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The response addresses the queries posted in 860 words with references.
//As per the directions, we will write about the reasons an auditor may assess control risk at the maximum level for one or more assertions embodied in an account balance. Then, we will discuss about the actions to be taken by an auditor to support assessing control risk at less than the maximum level when the auditor has determined that controls have been placed in operation.//

Assessment of Control Risk at Maximum Level by an Auditor

An auditor may assess control risk at the maximum level for one or more assertions embodied in an account balance. The reason behind this is that the auditor can identify the ineffectiveness of internal control system in assessing, detecting and rectifying error accompanied by making correction of misstatement of involved in the account balance. It is recognized by the auditor that controls are not likely be relevant to the considered assertion. Sometimes, it might become inefficient effort for the auditor in context of assessment of efficacy of the control over the entity. It is probable in case the design of client system is incorrect, which increases the risk and demands for assessment at maximum level. This implies that control risk come into existence due to the influence of precisely related client factors (Rittenberg, Johnstone & Gramling, 2011).

Assessment of Control Risk at Less than Maximum Level by an ...

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  • MBA (IP), International Center for Internationa Business
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