Audit risk represents a danger to users of audited financial statements. The following are attributes pointing to potential areas of vulnerability except
A) company in financial distress requiring financing.
B) management dominated by one or more strong-willed individuals.
C) deterioration in liquidity or solvency.
D) company earning high profits consistently over a number of years.

Question

Quizplus · Accepted Answer

A company consistently earning high profits over a number of years is not a potential area of vulnerability in terms of audit risk. This attribute may actually decrease audit risk because it suggests a financially sound and stable company. The other three options are potential areas of vulnerability because a company in financial distress, management dominated by strong-willed individuals, and deterioration in liquidity or solvency can increase the likelihood of material misstatements in the financial statements.

Audit Risk Represents a Danger to Users of Audited Financial