An auditor uses the knowledge provided by the understanding of internal control and the final assessed risk of material misstatement primarily to determine the nature, timing and extent of the:

a)      Attribute tests

b)      Compliance tests

c)      Tests of controls

d)      Substantive tests

The answer is ¡§d¡¨ and the explanation is "attribute tests, compliance tests, and tests of controls are all tests that assist the auditor in assessing control risk and determining the final assessed risk of material misstatement, not the other way around."

I don¡¦t have a problem with the answer but I have a question for the explanation.

Question: Is tests of controls a step before assessing risk of material misstatement or after?  I remember I read about if the risk assessment is based on effective operation of those controls, they must be tested by the auditor.  According to the explanation above, it sounds like tests of controls should be done to assessing risk?  Thanks!

You are right in saying that if risk assessment is based on effective operation of  controls , they must be tested by the auditor. Be careful when u read the question. It talks about the final Assessed risk and what you are talking about is the initial risk assessment.

If you are following becker check out page A3-37 (the topic Ongoing assessment). Risk assessment is an ongoing process. As you have said, if the risk assessment is based on effective operation of controls, they must be tested. But, the test may prove that :

1)The controls are not operating effectively or

2)The auditor maydetect more or less frequent misstatements than would have been expected according to the initial risk assessment.

The auditor's risk assessment may change due to this. That's why the explanation says that test of controls helps in assessing risk.( it is the final risk assessment that they are talking about here)..

I know Audit can be very tricky..

Hope I didn't confuse you further.