ACCT 107 Chapter Notes - Chapter 10: Audit Risk, Audit Evidence, Cash Flow
21 Oct 2020
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When auditors modify engagement risk, it"s done by control of acceptable audit risk. The degree to which external users rely on the statements. When external users place heavy reliance on the fs, it"s appropriate to decrease acceptable audit risk. Several factors are good indicators of the degree to which external users rely on the fs: The larger the client, the more widely the statements are used. Statements of publicly held corporate are normally relied on by many more users than those of closely held corporations. When statements include a large amount of liabilities, they are more likely to be used extensively by actual and potential creditors than when there are a few liabilities. The likelihood that a client will have financial difficulties after the audit report is issued. In situations where the auditor believes the chance of financial failure or loss is high and a corresponding increase in engagement risk occurs, acceptable audit risk should be reduced.
