An auditor learns that a client employee in control of inventory gets divorced and is responsible for paying a large amount of child support.All of the following for the audit of inventory likely are true except:
A) Fraud risk increases.
B) The risk of misappropriation of assets increases.
C) Risk of material misstatement increases.
D) Detection risk increases.

Question

Quizplus · Accepted Answer

The information given about the client employee is not directly related to inventory or its financial reporting. Therefore, it does not affect the detection risk (which is the risk of the auditor failing to detect a material misstatement). However, the other options are true because the employee's personal financial difficulties could lead to increased pressure and temptation to commit fraud or misappropriate assets, which would increase the risk of material misstatement.

An Auditor Learns That a Client Employee in Control of Inventory