Question

Obtaining positive results from testing controls means that?

1) the auditor can completely rely on a client's system of internal controls.
2) no substantive testing is required.
3) the auditor can plan to reduce the reliance on detailed substantive testing of transactions and account balances.
4) materiality will be set at a low dollar amount.

Answer 1

Positive results from control testing mean the auditor may reduce reliance on detailed substantive testing but cannot forego it entirely. These results also do not directly affect the setting of materiality levels.

Step-by-step explanation:

Obtaining positive results from testing controls indicates that the auditor can plan to reduce the reliance on detailed substantive testing of transactions and account balances. It does not mean that the auditor can completely rely on a client's internal controls or that no substantive testing is required. Furthermore, materiality is a separate concept and the finding from the test of controls is not enough to determine the materiality level.

It's also important to note that while control testing can help an auditor gain assurance over the internal control processes in place, the auditor must still carry out an appropriate level of substantive testing based on the assessed risks of material misstatement. Thus, the correct answer, in this case, would be that positive control testing might lead to the reduction but not the elimination of further testing needed.