In situations in which the auditor believes the chance of financial failure or loss is high, and there is a corresponding increase in engagement risk for the auditor, acceptable audit risk should:
A) remain the same.
B) be reduced.
C) be increased.
D) be calculated using a computerised statistical package.

Question

Quizplus · Accepted Answer

When there is a higher chance of financial failure or loss, the acceptable audit risk should be reduced. This is because the risk of material misstatement increases, as does the risk of the auditor failing to detect it. Therefore, to ensure the audit is effective, the acceptable audit risk should be lowered to reduce the possibility of the auditor missing material misstatements.

In Situations in Which the Auditor Believes the Chance of Financial