A partner and his team performed an audit and issued an unqualified audit report. A year later his firm was sued when a shareholder found out the financial statements were misstated.
This situation best describes
A) poor internal controls.
B) human error.
C) unethical behaviour.
D) audit risk.

Question

Quizplus · Accepted Answer

This situation best describes audit risk, which is the risk that the auditor does not detect a material misstatement in the financial statements. The fact that the financial statements were misstated suggests that there was an underlying issue with the client's financial reporting process, which the auditor failed to identify. The fact that the audit report was unqualified means that the auditor believed that the financial statements were fairly presented, but this turned out not to be the case. The situation does not necessarily suggest poor internal controls or unethical behavior, although these factors may have contributed to the misstatement.

A Partner and His Team Performed an Audit and Issued