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

Which of the following is a responsibility of the auditor regarding internal controls?

1. To design and implement effective controls for the client

2. To assess the effectiveness of the client's internal controls

3. To review and approve internal control policies

4. To manage internal controls on behalf of the client

The correct answer is: To assess the effectiveness of the client's internal controls

The responsibility of the auditor regarding internal controls primarily involves assessing the effectiveness of the client's internal controls. This involves evaluating whether the controls are adequately designed and operated effectively to mitigate significant risks of material misstatement in the financial statements. Auditors perform this assessment as part of their overall audit strategy to gather sufficient understanding of the client's internal control system. This is crucial because a strong internal control environment can lead to a reduced level of substantive testing and therefore more efficient audits. By assessing internal controls, auditors can determine where risks lie and how to tailor their audit procedures accordingly. Other responsibilities related to internal controls, such as designing, implementing, or managing those controls, fall outside the auditor's purview to maintain independence and objectivity in the audit process. This separation ensures that the auditor can provide an unbiased opinion on the financial statements, free from any conflicts of interest that could arise from being involved in the management of the client’s internal controls. Therefore, the auditor's role is to evaluate and provide insight on the existing controls rather than to intervene in their design or management.