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Dear Professor,,
In the quiz of chapter 8, there was a question saying:
“Porcelain Co is a retail outlet for China & ceramics”. Which one is the auditor not required to do?
A) Perform Substantive Procedures.
B) Perform Tests of Controls.
C) Attend physical count @ the end of the year.
D) Understand the entity.My solution was answer (D). My justification is that understanding the entity step means that the auditor needs to know what does the entity do in terms of business activity. And here in the topic it is clear that the company works as an outlet for Ceramic product category. So the auditor does not have to know again what does the business do.
The Website solution is answer (A). Please i need to know why is that. Why does the auditor does not need to perform substantive procedures. He did not say anything regarding the effectiveness of the internal control of the business.
I am waiting for your answer Please!! Thanks So Much Dear Professor,,
The correct answer is “Perform tests of controls” (I have just checked it and this is showing as correct). Per the overall audit diagram at the beginning of the chapter, relying on controls is “optional” – it has to be the more effective audit approach (so if controls are not strong there is no point testing them since they can only be relied on if satisfactory). There is much much more to understanding the business than simply knowing what it does.
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