Sound does not work in Windows virtual machine

Symptoms

Sound does not work in Windows virtual machine.

If I go to Device Manager (Start > in the search box type devmgmt.msc, hit Enter (return)) and expand Sound, video and game controllers I see Parallels Audio Controller without exclamation mark. This means that driver is properly installed:

If I go to Start > Control Panel > Hardware and Sound > Sound I see Parallels Audio Controller Speakers with green tick:

If I right-click Parallels Audio Controller Speakers and click Test the following error appears:

Cause

Windows misconfiguration/corruption.

Resolution

The current issue is not related to Parallels Desktop as Sound adapter works properly and necessary drivers are installed. Please contact Microsoft for the further assistance or repair Windows installation.