When obtaining an understanding of an entity's internal controls, an auditor should concentrate on the substance of the controls rather than their form because:
a. The procedures may be so inappropriate that no reliance is contemplated by the auditor.
b. Management may establish appropriate procedures but not enforce compliance with them.
c. Management may implement procedures whose costs exceed their benefits.
d. The procedures may be operating effectively but may not be documented.
Answer:B
Choice "b" is correct. "Substance over form" concerns relate to controls that appear on the surface to exist but in reality are not operating effectively. When obtaining an understanding of a client's internal controls, an auditor should concentrate on the substance of controls rather than the form because even when appropriate procedures are established, management may not enforce compliance.
Choice "d" is incorrect. "Substance over form" concerns relate to controls that appear on the surface to exist but in reality are not operating effectively. Procedures that are operating effectively, even if they are not documented, do not illustrate this situation.
Choice "a" is incorrect. The auditor should first obtain an understanding of the controls in order to determine whether the controls are appropriate or inappropriate. The auditor would not focus at all on controls deemed to be inappropriate.
Choice "c" is incorrect. While the cost-benefit of internal control is of concern to management in the design of the system, it plays no role in the auditor's attempt to gain an understanding of internal controls.