Your audit client has many different types of accounts receivable: Canadian,American,and other international accounts;and short- and long-term accounts.There are also some sales on consignment.The company has used forward exchange contracts to reduce its exposure due to foreign exchange fluctuations.How will this affect the audit engagement?
A)control risk will increase
B)inherent risks of error will decrease
C)risk of material misstatement increases
D)audit risk will be increased

Question

Quizplus · Accepted Answer

The presence of various types of accounts receivable with different terms and conditions, including international accounts and consignment sales, increases the risk of material misstatement. Additionally, the use of forward exchange contracts to manage foreign exchange risks could potentially affect the valuation of accounts receivable, further increasing the risk of material misstatement. Therefore, the audit team needs to thoroughly assess the risks and develop appropriate audit procedures to mitigate the risks.

Your Audit Client Has Many Different Types of Accounts Receivable