When management has an adequate level of integrity for the auditor to accept the engagement but cannot be regarded as completely honest in all dealings, auditors normally:
A) increase inherent risk and control risk.
B) reduce inherent risk and control risk.
C) reduce acceptable audit risk and increase inherent risk.
D) increase acceptable audit risk and reduce inherent risk.

Question

Quizplus · Accepted Answer

If management is not completely honest, the auditor needs to reduce their acceptable audit risk, meaning they need to be more certain that their audit is accurate. To do this, they should reduce inherent risk (risks related to the nature of the client's business) and increase detection risk (the risk that the auditor will not detect a material misstatement). However, control risk (the risk that controls in the organization are not effective) should remain unchanged as this relates to the management's integrity.

When Management Has an Adequate Level of Integrity for the Auditor