An Auditor Knows That an Audit Client Operating in an Industry

question 45

Multiple Choice

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.

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Definitions:

Electronic Commerce

The buying and selling of goods and services through the internet or other electronic systems.

Www.Amazon.Com

An online marketplace known for facilitating the buying and selling of a wide variety of goods and services.

Marketplace

A physical or virtual venue where goods and services are exchanged, including everything from retail stores to online platforms.

Monopolistic Competition

A market structure characterized by many firms offering products that are similar but not perfect substitutes, allowing for some degree of market power.