Risk of under reliance is the risk that the sample selected to test controls___

 Options:

a) Does not support the auditor’s planned assessed level of control risk when the true operating effectiveness of the control structure justifies such an assessment b) Supports the auditor’s planned assessed level of control risk when the actual position does not warrant such reliance c) Is not supported by adequate documents d) both (a) & (c)

The Correct Answer Is:

a) Does not support the auditor’s planned assessed level of control risk when the true operating effectiveness of the control structure justifies such an assessment

Correct Answer Explanation:

The risk of under-reliance in auditing refers to the potential danger that arises when the sample selected to test controls does not support the auditor’s planned assessed level of control risk, despite the actual operating effectiveness of the control structure justifying such an assessment.

Here’s a more detailed breakdown of why this is the correct answer:

a) Does not support the auditor’s planned assessed level of control risk when the true operating effectiveness of the control structure justifies such an assessment

This option highlights the key concept behind under-reliance. It elucidates that despite the control structure being effective enough to merit a lower assessed level of control risk, the sample chosen for testing doesn’t support this planned assessment.

In essence, it suggests that the auditor might err on the side of caution and set a higher control risk than warranted due to insufficient or inconclusive evidence from the sample.

The risk of under-reliance in auditing is a critical consideration that emphasizes the importance of accurately assessing the effectiveness of control structures.

When the selected sample fails to align with the auditor’s planned assessment of control risk, despite the actual robustness of the control framework, it leads to potential discrepancies in risk evaluation.

This discrepancy might result in an auditor assigning a higher control risk than justified by the effective control environment, potentially leading to increased substantive testing and, consequently, a less efficient audit process.

Therefore, mitigating the risk of under-reliance involves not only choosing representative samples for testing but also ensuring that these samples accurately reflect the true effectiveness of the control environment to support the auditor’s planned assessment of control risk.

Now, let’s examine why the other options are not the correct choices:

b) Supports the auditor’s planned assessed level of control risk when the actual position does not warrant such reliance

This option essentially represents over-reliance rather than under-reliance. It suggests that the chosen sample supports the auditor’s planned assessment, but in reality, the control effectiveness might not warrant such trust.

Over-reliance occurs when the auditor places too much confidence in the controls without adequate support or evidence.

c) Is not supported by adequate documents

This option pertains more to documentation deficiencies rather than the issue of under-reliance. It suggests that the selected sample lacks sufficient accompanying documentation.

While documentation is crucial for audit evidence, the absence of adequate documents doesn’t directly address the risk of under-reliance, which concerns the effectiveness of controls.

d) Both (a) & (c)

This option combines the concepts of inadequate support for the planned assessed level of control risk (as in option a) and the absence of adequate documents (as in option c). While both are valid concerns in auditing, they address different aspects of the audit process.

Under-reliance specifically refers to the potential misjudgment of the control risk level despite the true effectiveness of controls, which aligns more closely with option a.

In summary, the risk of under-reliance in auditing is about the potential failure of the chosen sample to support the auditor’s planned assessed level of control risk despite the actual effectiveness of the control structure justifying such an assessment.

It’s crucial for auditors to ensure their sampled tests are representative and supportive of their evaluations to avoid misjudgments in control risk assessments.

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