In recent years, globalization of business and factors such as technological disruption, tax reform, trade policies, and changing demographics in the workforce cause uncertainty and volatility in stock and bond markets. Why might it be important for you to consider current economic and other events as part of planning an audit? (Select all that apply.) Question content area bottom Part 1 A. Profitability, internal controls, and incentives and opportunities to misreport can all change rapidly in the current environment, making it imperative that the auditor understand these factors in addition to the client's industry and operating environment. To develop effective audit plans, auditors must have the expertise to assess external environment risks. B. Volatility in stock and bond markets can create uncertainty about the future profitability of certain industries and/or specific companies. This could ultimately affect the entity's ability to continue as a going concern. C. Technological advances can result in rapid changes in IT infrastructure and financial reporting systems, making it difficult to maintain and assess the effectiveness of internal controls over financial reporting, particularly automated controls. D. Changes in regulations, such as tax laws, create uncertainly and make it even more important for companies to have highly qualified employees in financial reporting roles. The auditor may also need to consider including specialists on the engagement team. E. Transactions such as related party transactions can create an external risk which could ultimately affect the entity's ability to continue as a going concern. These transactions ma not be valued at the same amount as a transaction with an independent third party and auditors must make inquiries of those charged with governance, such as the board of directors, about concerns they may have about the entity's relationships and transactions with related parties. F. A tour of the client's facilities is helpful in obtaining a better understanding of the client's external environment risks because it provides an opportunity to observe operations firsthand and to meet key personnel. G. Uncertainty about future cash flows makes it more difficult for auditors to develop expectations about financial reporting results or evaluate management's estimates for reasonableness, and can also create incentives and pressures for management to misreport

In recent years, globalization of business and factors such as technological disruption, tax reform, trade policies, and changing demographics in the workforce cause uncertainty and volatility in stock and bond markets. Why might it be important for you to consider current economic and other events as part of planning an audit? (Select all that apply.) Question content area bottom Part 1 A. Profitability, internal controls, and incentives and opportunities to misreport can all change rapidly in the current environment, making it imperative that the auditor understand these factors in addition to the client's industry and operating environment. To develop effective audit plans, auditors must have the expertise to assess external environment risks. B. Volatility in stock and bond markets can create uncertainty about the future profitability of certain industries and/or specific companies. This could ultimately affect the entity's ability to continue as a going concern. C. Technological advances can result in rapid changes in IT infrastructure and financial reporting systems, making it difficult to maintain and assess the effectiveness of internal controls over financial reporting, particularly automated controls. D. Changes in regulations, such as tax laws, create uncertainly and make it even more important for companies to have highly qualified employees in financial reporting roles. The auditor may also need to consider including specialists on the engagement team. E. Transactions such as related party transactions can create an external risk which could ultimately affect the entity's ability to continue as a going concern. These transactions ma not be valued at the same amount as a transaction with an independent third party and auditors must make inquiries of those charged with governance, such as the board of directors, about concerns they may have about the entity's relationships and transactions with related parties. F. A tour of the client's facilities is helpful in obtaining a better understanding of the client's external environment risks because it provides an opportunity to observe operations firsthand and to meet key personnel. G. Uncertainty about future cash flows makes it more difficult for auditors to develop expectations about financial reporting results or evaluate management's estimates for reasonableness, and can also create incentives and pressures for management to misreport

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 2QE: The chapter encourages analysts to develop forecasts that are realistic, objective, and unbiased....

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Question content area bottom

Part 1

Profitability, internal controls, and incentives and opportunities to misreport can all change rapidly in the current environment, making it imperative that the auditor understand these factors in addition to the client's industry and operating environment. To develop effective audit plans, auditors must have the expertise to assess external environment risks.

Volatility in stock and bond markets can create uncertainty about the future profitability of certain industries and/or specific companies. This could ultimately affect the entity's ability to continue as a going concern.

Technological advances can result in rapid changes in IT infrastructure and financial reporting systems, making it difficult to maintain and assess the effectiveness of internal controls over financial reporting, particularly automated controls.

Changes in regulations, such as tax laws, create uncertainly and make it even more important for companies to have highly qualified employees in financial reporting roles. The auditor may also need to consider including specialists on the engagement team.

Transactions such as related party transactions can create an external risk which could ultimately affect the entity's ability to continue as a going concern. These transactions ma not be valued at the same amount as a transaction with an independent third party and auditors must make inquiries of those charged with governance, such as the board of directors, about concerns they may have about the entity's relationships and transactions with related parties.

A tour of the client's facilities is helpful in obtaining a better understanding of the client's external environment risks because it provides an opportunity to observe operations firsthand and to meet key personnel.

Uncertainty about future cash flows makes it more difficult for auditors to develop expectations about financial reporting results or evaluate management's estimates for reasonableness, and can also create incentives and pressures for management to misreport.

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