Answer (B) is correct . The policies and procedures most likely to be relevant to a financial statement audit pertain to the entity’s ability to record, process, summarize, and report financial data consistent with the assertions embodied in the financial statements. Maintenance of control over unused checks is an example of a relevant procedure because the objective is to safeguard cash. The auditor must understand the ICS policies and procedures relevant to the assertions about cash in the financial statements. (S)he must then assess control risk for those assertions; that is, (s)he must evaluate the effectiveness of the ICS in preventing or detecting material misstatements in the assertions.
Answer (A) is incorrect because It concerns the effectiveness, economy, and efficiency of management decision processes that ordinarily do not relate to an entity’s ability to record, process, summarize, and report financial data consistent with financial statement assertions.
Answer (C) is incorrect because It concerns the effectiveness, economy, and efficiency of management decision processes that ordinarily do not relate to an entity’s ability to record, process, summarize, and report financial data consistent with financial statement assertions.
Answer (D) is incorrect because It concerns the effectiveness, economy, and efficiency of management decision processes that ordinarily do not relate to an entity’s ability to record, process, summarize, and report financial data consistent with financial statement assertions.
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