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CMA Intermediate · Corporate Accounting and Auditing · Report on Internal Financial Control over Financial Reporting

While testing the operating effectiveness of an internal financial control over financial reporting, which audit procedure provides the most reliable evidence that the control actually operated throughout the year?

Re-performance of the control on a sample of transactions gives the most reliable evidence of operating effectiveness, because the auditor independently executes the control and compares outcomes. Inquiry, reading policy manuals and management representations are weaker, as they describe intended design rather than actual operation.

  1. AInquiry of the process owner about how the control works
  2. BRe-performance of the control by the auditor on a sample of transactionsCorrect
  3. CReading the company's internal control policy manual
  4. DObtaining a management representation that controls are effective

Explanation

Re-performance involves the auditor independently executing the control on selected items and comparing results, giving stronger evidence than inquiry alone. Inquiry, reading manuals and representations do not by themselves show that the control operated effectively. Hence re-performance is the most reliable among the choices.

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