When assessing the risk of material misstatements in the financial statements,
A) inadequate internal control procedures will mitigate client business risk.
B) GAAS specifies in detail how much and what types of evidence the auditor needs to obtain.
C) company management is responsible for determining materiality levels.
D) the auditor must understand the client's business and industry.

Question

Quizplus · Accepted Answer

The auditor must understand the client's business and industry in order to accurately assess the risk of material misstatements in the financial statements. This understanding includes understanding the client's internal control procedures, but inadequate procedures may increase the risk of material misstatements rather than mitigate it. GAAS provides general guidelines for obtaining sufficient evidence, but it does not specify the exact types or amounts of evidence needed. While management sets the materiality levels for their financial statements, the auditor may need to adjust these levels based on their own assessment of the risk of material misstatements.

When Assessing the Risk of Material Misstatements in the Financial