If an auditor believes the client will have financial difficulties after the audit report is issued, and external users will be relying heavily on the financial statements, the auditor will probably set acceptable audit risk as high.

Question

Quizplus · Accepted Answer

If the auditor believes that the client will have financial difficulties after the audit report is issued, and external users will be relying heavily on the financial statements, the auditor would increase the level of audit scrutiny and would lower the acceptable audit risk, rather than setting it high. This is because the higher the acceptable audit risk, the more likely that the auditor will give an unqualified opinion on financial statements that contain material misstatements. This would undermine the credibility and reliability of the financial statements and could harm the interests of external users who rely on them.

If an Auditor Believes the Client Will Have Financial Difficulties