Risks associated with specific industries may affect the auditor's assessment of client business risk and acceptable audit risk,and even influence client acceptance decisions.Which of the following businesses would be the most risky for the auditor to accept as a new client?
A)a small manufacturer of metal and plastic parts that has steady profits and has been in business for 15 years
B)a client who is developing a computer game that is expected to be ready in three years and has no other products
C)a retail company in the clothing industry that has mid-range pricing and appeals to a large population sector
D)a firm consisting of a partnership of ten lawyers that operates out of three different cities in one province

Question

Quizplus · Accepted Answer

The development of a computer game is a highly uncertain and volatile industry, making it difficult for the auditor to assess client business risk and acceptable audit risk. The lack of other products also leaves the company vulnerable to demand fluctuations, which could affect their ability to pay for audit services. The other industries mentioned are more stable and have a history of profitability, making them less risky for the auditor to accept as clients.

Risks Associated with Specific Industries May Affect the Auditor's Assessment