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 low.

Question

Quizplus · Accepted Answer

If the auditor believes that external users will heavily rely on the financial statements and the client is likely to face financial difficulties after the audit report is issued, the auditor will set acceptable audit risk low to provide reasonable assurance that the financial statements are free from material misstatements. This is because errors or omissions in the financial statements can have significant consequences for external users who rely on them.

If an Auditor Believes the Client Will Have Financial Difficulties