Approach

Question 1

Substantive Approach

Answer 1

places no reliance on the operating effectiveness of controls

applied when the financial reporting system or internal controls over financial reporting are either not reliable or have not yet been established and implemented

control risk = high

Question 2

Combined Approach

Answer 2

approach considers the operating effectiveness of controls and whether or not the operating effectiveness of controls can be relied upon to reduce detection risk to an acceptably low level.

auditor decides to rely on internal controls

internal controls are STRONG

control risk = LOW