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 have an understanding of the client's business and industry.

Question

Quizplus · Accepted Answer

In order to assess the risk of material misstatements in the financial statements, the auditor must have an understanding of the client's business and industry. This is because each business operates differently and may have unique risks and factors that could affect the accuracy of their financial statements. Inadequate internal control procedures increase the risk of material misstatement, and GAAS provides general guidelines for evidence gathering rather than specific requirements. While company management sets materiality levels, it is the auditor's job to evaluate whether misstatements above those levels could affect the overall accuracy of the financial statements.

When Assessing the Risk of Material Misstatements in the Financial