An auditor assesses management's ability to identify and respond to its business risks because:
A)It reduces the auditor's risk of accepting the audit engagement
B)It reduces the amount of planned audit evidence.
C)It reduces the risk of material misstatement at the financial statement level.
D)It reduces the preliminary assessment of materiality.

Question

Quizplus · Accepted Answer

Assessing management's ability to identify and respond to business risks is important for the auditor because it reduces the risk of material misstatement at the financial statement level. This enables the auditor to have a greater confidence in the reliability of the financial statements and reduces the risk of audit failure. Choices A, B, and D are incorrect because they do not accurately reflect the reason why the auditor assesses management's ability to identify and respond to business risks.

An Auditor Assesses Management's Ability to Identify and Respond to Its