Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

An auditor incorrectly assesses control risk too high due to:

1. The control activity's ineffectiveness in practice

2. The auditor believing controls reduce testing effort

3. The mistake of assuming client assertions are valid

4. The sample indicating lower control risk than actual

The correct answer is: The control activity's ineffectiveness in practice

When an auditor incorrectly assesses control risk as too high due to the ineffectiveness of a control activity in practice, it indicates a fundamental misunderstanding of how effective controls impact the overall assessment of risk. Control risk is the risk that a material misstatement in the financial statements will not be prevented or detected on a timely basis by the internal controls of the entity. If the auditor perceives a control as being ineffective, they may estimate the control risk higher than it truly is. This could occur if the auditor has observed that a specific control procedure is not functioning as intended, thereby leading them to conclude that more substantive testing is required. In essence, the assessment of control risk should reflect a balanced understanding of how effectively the internal controls are operating in practice. Therefore, if an auditor assesses this risk too high based solely on the ineffectiveness of a control, they may miss opportunities to rely on other effective controls or to adjust their testing strategy appropriately, which could lead to inefficiencies in the audit process. Other factors, while they can influence the auditor's risk assessment, do not directly link to the misjudgment of control effectiveness in the same way. For example, believing that controls reduce testing effort pertains to the overall audit strategy rather than the actual assessment