Detailed Answer
(b) The requirement is to identify the correct statement
regarding the test data approach. Answer (b) is correct because
the test data approach consists of processing a set of dummy
transactions on the client’s computer system. The test data approach
is used to test the operating effectiveness of controls the
auditor intends to rely upon to assess control risk at a level lower
than the maximum. Answer (a) is incorrect because only one
transaction of each type is generally tested. Answer (c) is incorrect
because it is not possible to include all possible valid and
invalid conditions. Answer (d) is incorrect because the program
that should be tested is the client’s program which is used
throughout the year.