Investigation of new clients and re- evaluation of existing ones is an essential part of deciding:
A) financial risk.
B) statistical risk.
C) inherent risk.
D) acceptable audit risk.

Question

Quizplus · Accepted Answer

Acceptable audit risk is the risk that the auditor is willing to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion is given. This risk is affected by the inherent risk, control risk, and detection risk. Investigating new clients and re-evaluating existing ones is crucial in determining the inherent risk, which is the risk of material misstatement before considering internal controls. Therefore, it is essential in determining the acceptable audit risk that an auditor is willing to take.

Investigation of New Clients and Re- Evaluation of Existing Ones