The following questions concern the overall audit strategy and audit program, including selection of the type of test to perform. Choose the best response.
a. In the financial statement audit of a nonpublic company, the auditor decides to perform tests of the controls related to the occurrence of sales transactions. Which of the following best explains why the auditor decided to test these controls?
(1) In a nonissuer financial statement audit, the auditor is required to test the operating effectiveness of internal controls.
(2) The auditor wants to obtain an understanding of the design of the internal controls.
(3) Control risk is assessed at below the maximum.
(4) The auditor wants to obtain an understanding of the implementation of the internal controls.
b. Substantive analytical procedures are most likely to be used to test which of the following accounts?
(1) Interest income
(2) Cash
(3) Accounts payable
(4) Treasury stock
c. Which of the following is the auditor least likely to consider when developing the overall audit strategy?
(1) Complexity of the company’s operations
(2) Evaluation of accounts receivable confirmations
(3) Preliminary judgment about materiality
(4) The economic conditions affecting the industry in which the company operates
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