[zxu2v2]

I’m using Roger. I noticed there is a conflict between what the lecture says and the MCQ about performing test of controls for Issuer VS. Non-issuer. Please help me if you could explain!

Is it always to perform test of control when the control is effective and we intend to rely? for both issuer and non-issuer?
Roger says for issuer, we would need to do test of control even if it is ineffective, because we are required to give an opinion on IC. That is, we test ALL controls for issuers, rather than test only the controls we rely on for non-issers financial statement audit.

Is it true we still do test of controls for issuer even the IC is ineffective?

Reference: Roger book 3-41 chart

[Anonymous]

I am not sure on the details, but for non-issuers, you test controls if you plan to rely, but for issuers, you have to actually audit the controls and opine on the controls, that's why you probably test all of the controls…

[huskyy123]

An issuer is required to submit an opinion on financial statements and Internal control. A nonissuer is not required to but may issue an opinion on I/C. A nonissuer is required to issue an opinion on the F/S always. In a nonissuer situation, you would only submit an opinion on I/C if you can rely on it (if the controls are operating effectively), or its an opinion regarding information technology.

[zxu2v2]

Thank you for your response! I look up that MCQ question in the Roger study help center website. I found that many people thought it confusing and asked for help. I wanna post the question here in case someone encounter this problem and want to check on it.
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In which of the following cases would an auditor of either an issuer or nonissuer choose not to perform tests of controls for the purpose of lowering the assessed risk of material misstatement (RMM)?

I The auditor believes the internal controls are not sufficiently reliable to limit the nature, timing and extent of substantive testing.
II The auditor believes the cost of testing controls would exceed the potential benefit.

The answer is Both I and II.

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Confusion ->>> I thought that for an issuer the auditor MUST perform test of control because he has to give an opinion on Internal control. That auditor has to perform the test IC no matter he intends to rely or not.

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Here is the explanation given by the HW tutor from Roger:

“IPQ5125 is specifically dealing with the planning phase of the audit where we obtain an understanding of internal controls specifically to REDUCE THE ASSESSED LEVEL OF RMM. The internal control requirement your referring to is the auditors requirement to obtain and understanding of internal control.
Again, the difference is essentially that this question is about the planning phase.”

[Earla Riopel (NYCARE)]

MCQ: “In which of the following cases would an auditor of either an issuer or nonissuer choose not to perform tests of controls for the purpose of lowering the assessed risk of material misstatement (RMM)?

I The auditor believes the internal controls are not sufficiently reliable to limit the nature, timing and extent of substantive testing.
II The auditor believes the cost of testing controls would exceed the potential benefit.

The answer is Both I and II.”

My take: The keywords here are,…”choose not to perform tests of controls for the purpose of lowering the assessed risk of material misstatement (RMM)?”. The assessing risk is normally done at the planning stage of the audit. It includes obtaining an understanding of internal controls.

The two choices are ‘correct', for the following reasons:
– Since the IC cannot be relied on, the substantive testing will be performed and test of IC is ignored, but the auditor's assessment is documented.

– The auditor is trying to tell the audit working paper/report users that, he cannot audit an IC which is not reliable and rather rely on substantive testing to have that reasonable basis for the audit report.

– The second choice is more of a cost-benefit constraint. I know, this is debatable, but if you think like a business person, you don't want to go into a business which is not profitable. Thus, an acceptable alternative procedures (i.e. substantive testing – test of balances details) are being performed to compensate the omitted costly procedures.

As to your confusion, @zxu2v2, please try not to get confuse of the auditor MUST test of internal controls. Auditor only test internal controls when it can be relied on, which in this case it's not reliable. Think of it like: No internal controls, heavy on substantive testing, esp. at the year-end FS balances. If there's internal controls, there would be test of controls and lighter on substantive testing, likely done during interim dates, not just year-end.

AUD - 49
BEC - NINJA in Training
FAR - NINJA in Training
REG - 55

Passed: AUD (75%'08/77%'17), REG (76%'09) & BLaw(77%'99); highest on FAR (63%'11/'15) & BEC (63%'11). Credit Hours: USA(PH)-BCom'85(4yr-grandfathered); UBC-(DAP'02/'19); DC-(BBA-Acctg.'22-4th yr)=over 150 hrs credits

[Author]

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