Assume that you have been hired by Willington, CPA, as a new staff assistant. He informs you that his approach to audits has always been to assess control risk at the maximum and perform all the substantive procedures he considers necessary. However, he has recently read an article in The Journal of Accountancy that indicates that a more efficient audit may sometimes be achieved by performing some tests of controls and thereby assessing control risk at a lower level. Willington shows you the following table that came from the article:

Willington understands that the table is only for illustrative purposes and that other €œin between€ levels of the various risks are possible, but he wants you to use the ones in the table to help him understand the trade-offs between tests of controls and substantive procedures. He understands that these risks would be assessed at the assertion level for the various accounts, but he wants to better understand how the various tests performed in an audit €œtie together.€ To keep things simple, he says to assume that inherent risk is at the maximum level in all cases.
He has roughed out a table that he wants you to complete for the following three cases:
Case A: Controls, as described by management, appear strong, and Willington wishes to test them to the extent possible. In this case, he realizes that the results of the tests of controls may reveal that the controls are not operating effectively. Accordingly, Case A has three subcases:
A(1) Controls are found to be strong and operate effectively.
A(2) Controls are found to operate moderately effectively.
A(3) Controls, despite management's description, are found to be ineffective.

Case B: Controls, as described by management, appear strong, but Willington wishes to use his old approach of not testing them.
Case C: Controls, as described by management, appear weak.
Fill out the chart on the following page using the following reply options.

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Assessed Level of Control Risk Inherent Risk Low Moderate Maximum Low Highest allowable detec High detection risk (low Moderate detec- tion risk (lowest allow- able scope of substantive procedures) scope of substantive procedures) tion risk (moderate scope of substantive procedures) Moderate High detection risk (low Moderate detec Low detection risk (very scope of substantive procedures) tion risk (moderate scope of substantive procedures) high scope of substan- tive procedures) Maximum Moderate detection risk Low detection risk (very Lowest detection (moderate scope of sub- high scope of substan risk (highest scope stantive procedures) tive procedures) of substantive procedures) Question Reply Options 1. At what level is the planned OW assessed level of control risk? Moderate Maximum 2. Describe the scope of tests None Tests performed of control that will be performed 3. At what level is the assessed Low Moderate Maximum level of control risk? a. Acceptable b. Scope of Substantive Procedures Level of Detection Risk 4. What are the (a) acceptable level of detection risk and (b) the resulting scope of substantive procedures? Lowest Highest scope Heavy emphasis on externally generated evidence, performed at year-end and/or using larger samples Low High scope Emphasis on externally generated evidence, performed at year-end, and/or using larger samples Moderate Moderate -Balance between externally generated evidence and internally generated evidence performed at year-end or interim period, and/or with moderate sample sizes High Low scope-Emphasis on internally generated evidence, performed at interim dates, and/or using smaller samples Highest Lowest scope Heavy emphasis on internally generated evidence, performed at interim dates, and/or using smaller samples