Auditing & Assurance Services 6th Edition by Timothy Louwers

Exercise 65

Responsibilities and Performance Principles. Respond to each of the following comments that you heard related to the audit of Swan Company, a public entity.
a. "We don't need to consider the risk of material misstatement in our work because we really can't do anything to reduce that risk."
b. "Because the client has not implemented effective internal controls, we need to gather more reliable evidence. This means we need to test a greater number of transactions and obtain more reliable forms of evidence."
c. "We will really need to spend a lot of time and effort on this audit. Because this client has just filed for a bond offering, we can't allow for any misstatements in the financial statements. We need to guarantee the accuracy of the client's financial statements."
d. "Because this company has $140 million in revenues, we really shouldn't be concerned about smaller accounts because they are not likely to have a major impact on the financial statements."
e. "I know it will be more time consuming and expensive, but we are required to physically inspect the stock certificates held by the client rather than obtain confirmation from the custodian. After all, our own direct observation is more reliable than receiving a confirmation."