Question

Which of the following are irrelevant when gaining an understanding of the client at the industry level?

		Level of government support.
		Level of demand for the client’s goods or services.
		Sources of financing.
		Client’s reputation.

Which of these would not necessarily be considered a risk factor for potential misstatements?

		Segregation of duties is not practiced.
		An employee in the cash office was passed over for a promotion.
		There is intense price competition in the industry of operation.
		Profit margin has increased and inventory turnover days has decreased.

An auditor's assessment of their client's integrity would not include:

		the client's attitude to audit fees and its willingness to pay a fair amount.
		whether the auditor has sufficiently competent staff to complete the audit.
		the reputation of the client and its management.
		the client's attitude to risk exposure and management.

Answer 1

A) Irrelevant when gaining an understanding of the client at the industry level:

Sources of financing.

It is irrelevant while gaining knowledge of entity at the industry level.

B) Not necessarily to be considered a risk factor for potential misstatments:

There is intense price competition in the industry of operation.

It does not constitute as risk factor for potential misstatements as it may only affect the pricing decisions of the entity.

C) Auditor's assessment of their client's integrity would not include:

whether the auditor has sufficiently competent staff to complete the audt.

Because this does not affect the client's integrity.