Question

d Given the CPA rm is auditing fnancial statements, why would they need to understand anything about the cient's busness among other factors, each trigger diferent types of nsks that could lead to material wsstatement O B. There are unique accounting n the fnancial st when planning the aud O C. The only way to detect fraud is to have a therough undarstanding of the clent's busness and al of the teal contols and proceses This aso ste mt of matea sbrancal seenti O D. All of the above O E. Both B and C O F. Both A and B

Answer 1

Solution:

It is necessary for CPA firm to understand anything about client's business due to following reasons:

1. Each entity faces, a number of risks unique to the nature of business and industry. The types of operations, the extent of regulation, how the organization obtains capital to fund its business model and the nature of accounts in the financial statements among other factors, each trigger different type of risks that could lead to material misstatements.

2. There are unique accounting standards for certain industries that impact how transactions, accounts and disclosures are reported in financial statements. Thus a through understanding of the client's business is critical to assessing the risk of material misstatement in the financial statements when planning the audit.

Hence option F "Both A and B" is correct.