The correct answer is: C. Obtain an understanding, make a preliminary assessment of control risk, perform tests of control, design substantive procedures.
The auditor’s consideration of internal control is a four-step process:
- Obtain an understanding of the entity’s internal control. This includes understanding the entity’s objectives, its business processes, and the related controls.
- Make a preliminary assessment of control risk. This is an assessment of the likelihood that the entity’s internal control will prevent or detect material misstatements.
- Perform tests of control. This is the process of evaluating the effectiveness of the entity’s internal control.
- Design substantive procedures. This is the process of designing tests to detect material misstatements in the financial statements.
The auditor’s consideration of internal control is an important part of the audit process. It helps the auditor to assess the risk of material misstatement in the financial statements and to design appropriate audit procedures.
Option A is incorrect because it does not include the step of making a preliminary assessment of control risk.
Option B is incorrect because it does not include the step of obtaining an understanding of the entity’s internal control.
Option D is incorrect because it does not include the step of designing substantive procedures.