In order to obtain an understanding of the client's business, the audit firm will consider
A) inherent and control risk of the client.
B) audit risk to the CPA firm.
C) the client's business risk and the risk of material misstatements in the financial statements.
D) the CPA firm's potential ongoing revenue from the audit client.

Question

Quizplus · Accepted Answer

In order to obtain an understanding of the client's business, the audit firm will consider the client's business risk and the risk of material misstatements in the financial statements. This is because understanding the client's business is important in identifying areas where there may be a risk of material misstatements in the financial statements. This, in turn, helps the audit firm to develop effective audit procedures and to allocate appropriate resources to the audit. Inherent risk and control risk are also important considerations, but they are only part of the overall risk assessment process. Similarly, audit risk to the CPA firm and potential ongoing revenue from the audit client are not relevant considerations when obtaining an understanding of the client's business.

In Order to Obtain an Understanding of the Client's Business