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) reduce acceptable audit risk and increase inherent risk.
B) reduce inherent risk and control risk.
C) increase inherent risk and control risk.
D) increase acceptable audit risk and reduce inherent risk.

Question

Quizplus · Accepted Answer

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, the auditor should exercise their professional judgment and reduce acceptable audit risk and increase inherent risk. This is because there is a higher risk that management may conceal or misrepresent information that may impact the financial statements. By reducing acceptable audit risk, the auditor will conduct more extensive audit procedures to provide a higher level of assurance. Additionally, by increasing inherent risk, the auditor acknowledges the increased likelihood of material misstatement in the financial statements due to management's lack of complete honesty.

When Management Has an Adequate Level of Integrity for the Auditor