ACCA Advanced Audit and Assurance (AAA) Practice Exam

Which procedures do auditors undertake to obtain audit evidence?

1. Only substantive procedures

2. Only tests of controls

3. Risk assessment procedures and substantive procedures

4. Management review procedures

The correct answer is: Risk assessment procedures and substantive procedures

Auditors undertake a combination of risk assessment procedures and substantive procedures to obtain audit evidence. This approach is fundamental to the audit process as it allows for a comprehensive evaluation of the financial statements. Risk assessment procedures are essential for identifying and assessing risks of material misstatement. These procedures include understanding the entity and its environment, including internal controls, and assessing the risks associated with specific areas of the financial statements. This initial step helps auditors to tailor their approach and focus on areas that may be more susceptible to error or fraud. Substantive procedures are performed to obtain evidence regarding the completeness, accuracy, and validity of the financial information. These procedures may involve tests of details, such as examining transactions and balances, or analytical procedures, which help in evaluating financial information through comparisons and relationships. Combining these two types of procedures allows auditors to gather sufficient and appropriate evidence to form their conclusions about the financial statements. This thorough approach ensures that auditors address both the risk factors identified and the actual assertions made in the financial statements effectively. In contrast, focusing solely on substantive procedures or tests of controls would limit the auditor's ability to assess risks comprehensively and could result in inadequate evidence for forming an opinion on the financial statements. Management review procedures, while valuable, do not constitute the