If an Auditor Believes the Client Will Have Financial Difficulties

question 29

True/False

If an auditor believes the client will have financial difficulties after the audit report is issued, and external users will be relying heavily on the financial statements, the auditor will probably set acceptable audit risk as low.

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Definitions:

Net Working Capital

Represents the difference between a company's current assets and current liabilities, indicating the liquidity of the business.

Pro Forma Statements

Financial statements that project the future financial performance of a company, based on certain assumptions.

Long-Term Debt

Debt with a maturity of more than one year, used to finance or capitalize lasting investments.

Recoveries of Net Working Capital

The process of reclaiming cash invested in net working capital components, such as accounts receivable, and reducing accounts payable.