When dealing with audit risk,
A) audit risk should not be a factor when determining if a new client should be accepted.
B) audits with a low acceptable audit risk generally result in lower audit fees.
C) if management of a company has a reputation of integrity, but is also known to take aggressive financial risks, the auditor should not accept the company as a new client.
D) if the auditor concludes that acceptable audit risk is low, but the client is still acceptable, the auditor may still accept the engagement but increase the fee proposed to the client.

Question

Quizplus · Accepted Answer

If the auditor concludes that acceptable audit risk is low but the client is still acceptable, the auditor may still accept the engagement, but increase the fee proposed to the client. This is because a lower acceptable audit risk means a higher level of assurance is required, which could result in additional work and time for the auditor. Increasing the audit fee helps compensate for the additional work required. The other options are incorrect because audit risk should always be a factor in determining whether to accept a new client, audits with a lower acceptable audit risk generally result in higher audit fees, and management's reputation of integrity is a good factor in determining a client's suitability.

When Dealing with Audit Risk