Question

A reliance strategy is chosen when the auditor:

A) Plans on conducting tests of controls.
B) Has set the control risk at a high level.
C) Has set the control risk at a lower level.
D) Both a and c.

Answer 1

A reliance strategy is chosen when the auditor has set the control risk at a lower level.

Step-by-step explanation:

In auditing, a reliance strategy is chosen when the auditor has set the control risk at a lower level. This means that the auditor believes the internal controls are effective and can be relied upon. By choosing a reliance strategy, the auditor can reduce the amount of substantive testing that needs to be performed, saving time and resources.

For example, if an auditor determines that a company has strong internal controls over cash receipts, they may set the control risk at a lower level and rely on those controls to prevent or detect errors or fraud. This would allow the auditor to focus on other areas of the audit that may have higher inherent risk.