Internal controls have direct relation with the misstatement in the financial statement. A good internal control system indicates lesser chance of misstatements and a weak internal control indicates higher chances of the material misstatements in the financial statements. The purpose of the audit is to find the material misstatement. Hence, the auditor should obtain the knowledge of the internal control before performing subtractive procedures. To indicate: The reason for the analytical procedure to have limited use in audit of cash balance.

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Chapter 16, Problem 16.3RQ

To determine

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Internal controls have direct relation with the misstatement in the financial statement. A good internal control system indicates lesser chance of misstatements and a weak internal control indicates higher chances of the material misstatements in the financial statements. The purpose of the audit is to find the material misstatement. Hence, the auditor should obtain the knowledge of the internal control before performing subtractive procedures.

To indicate: The reason for the analytical procedure to have limited use in audit of cash balance.

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