How Is Lack of Understanding of a Client's Knowledge and Industry

question 12

Multiple Choice

How is lack of understanding of a client's knowledge and industry linked to the auditor's business risk?

• A)sales and collection processes need to be carefully documented so that the auditor can assess the value of accounts receivable.
• B)failure to fully understand the nature of the client's transactions could result in litigation should the client fail.
• C)the auditor may not be adequately trained to understand the nature of the client's business and thus may conduct a poor quality audit.
• D)there may not be sufficient expertise assigned to the audit engagement,resulting in a lack of understanding of complex issues.

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Definitions:

Goodwill

An intangible asset that arises when a business is acquired for more than the fair value of its tangible and identifiable intangible assets.

Book Values

The value of an asset as it appears on a company's balance sheet, calculated as the cost of the asset minus any depreciation or amortization.

Fair Values

An estimate of the market value of an asset or liability, based on current prices in an active market.

Acquired Entity

A company that has been purchased or taken over by another entity.