An auditor knows that an audit client operating in an industry in which common stock is valued based on the price-earnings ratio will soon make an initial public offering.All of the following are true except:
A) Materiality should be reduced.
B) Risk of material misstatement should increase.
C) Detection risk should decrease.
D) Audit risk should increase.

Question

Quizplus · Accepted Answer

Audit risk should not increase; instead, it should be managed to an acceptable level. The other options are true because they reflect the need for increased scrutiny and reduced tolerance for errors due to the upcoming public offering.

An Auditor Knows That an Audit Client Operating in an Industry