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Janice and Derek, two audit staff associates assigned to the audit of Peabody Enterprises are...

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Accounting

Janice and Derek, two audit staff associates assigned to the audit of Peabody Enterprises are discussing the relationship between the risk of material misstatement and the overall audit strategy. Which of the following statements made by Derek is correct?

If the auditor determines that the risk of material misstatement is low, then the auditor is likely to adopt a reliance on controls strategy, and perform additional substantive testing.
There really isn't any particular relationship between the risk of material misstatement and audit strategy. They're just different parts of the audit.
When the risk of material misstatement is assessed as high by the auditor, then the audit team is more likely to rely on the client's controls and perform less substantive testing.
If the auditor assesses the risk of material misstatement as high, then the auditor is likely to rely less on the client's system of internal controls, and is likely to perform increased substantive testing.

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