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Audit Risk and Business Risk
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Audit Risk and Business Risk

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Questions and Answers

What is the potential effect of an auditor deciding that there is a higher inherent risk for an account?

  • Less audit evidence will be required for that account
  • More audit evidence will be required for that account (correct)
  • The audit risk will be decreased
  • The client will be refused for the audit

    • What happens to the cost of conducting an audit when acceptable audit risk is decreased?

  • The cost of conducting an audit increases (correct)
  • The cost of conducting an audit is unknown
  • The cost of conducting an audit decreases
  • The cost of conducting an audit remains the same

    • Why do some CPA firms refuse new clients in certain high-risk industries?

  • Due to the complexity of the industry
  • Due to the lack of potential revenue
  • Due to the high risk of material misstatement (correct)
  • Due to the low risk of material misstatement

    • What do audit firms consider when making client acceptance decisions?

    <p>The client's business risk and the risk of material misstatements</p> Signup and view all the answers

    Why do auditors assess inherent risk as high for related parties and related-party transactions?

    <p>Due to the lack of independence between the parties</p> Signup and view all the answers

    Why are transactions with related parties required to be disclosed in the financial statements?

    <p>If they are deemed to be material</p> Signup and view all the answers

    What is the primary reason why auditors consider inherent risk as high for certain industries?

    <p>Due to the high risk of material misstatement</p> Signup and view all the answers

    What is the main consideration for audit firms when deciding to accept a new client?

    <p>The risk of material misstatement</p> Signup and view all the answers

    Why do auditors assess inherent risk as high for related-party transactions?

    <p>Due to the lack of independence between the parties</p> Signup and view all the answers

    What is the main purpose of assessing inherent risk?

    <p>To determine the risk of material misstatement</p> Signup and view all the answers

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