A thorough understanding of the client's business and industry and knowledge about the company's operations are essential for doing an adequate audit. Why do auditors need greater knowledge about major customers and suppliers and related risks?
A) Information technology connects these organizations, so they affect each other.
B) Information technology provides rapid information about organizations.
C) There is increased importance of human capital and other intangible assets.
D) Joint ventures and strategic alliances affect client business risks.

Question

Quizplus · Accepted Answer

Auditors need to understand major customers and suppliers and related risks because they are connected through information technology, which can impact each other's operations. For example, a major supplier experiencing financial difficulties could affect the client's ability to continue its operations. Similarly, a major customer's change in demand patterns could impact the client's sales and profitability. Therefore, understanding these risks is essential for a thorough audit.

A Thorough Understanding of the Client's Business and Industry and Knowledge