ACCA Audit and Assurance (F8) Practice Exam

What should auditors do after testing internal controls?

1. File a report of findings

2. Reassess control risk

3. Conduct inquiries of staff

4. Revise the audit timeline

The correct answer is: Reassess control risk

After testing internal controls, it is essential for auditors to reassess control risk. This step allows auditors to evaluate whether their initial assessment of control risk remains valid based on the results of the testing. If the testing reveals that the internal controls are functioning effectively, auditors may lower the control risk and adjust the planned audit approach accordingly. Conversely, if the testing uncovers significant deficiencies in the controls, the auditors must increase the assessed control risk, which often leads to a more extensive substantive testing approach during the audit. Reassessing control risk is crucial because it directly impacts the audit strategy, determining the nature, timing, and extent of further audit procedures necessary to provide reasonable assurance that the financial statements are free from material misstatement. Auditors must ensure that their risk assessments are based on the most current evidence available, derived from their tests of controls, which ultimately helps in forming an opinion on the financial statements.