$2-$ Johnson and Co$.$ CPA firm has been invited to submit a bid to audit Morriston State University, a private, traditional brick$-$and$-$mortar

school. Before submitting the bid, the partners of Johnson and Co$.$ are meeting to discuss inherent risks that may be present, and

associated with this type of industry. Which of the following represents the most likely inherent risk the partners will want to consider

before submitting a bid?

Colleges and Universities operate in an extremely competitive marketplace. Students have many options among educational

institutions, and can easily transfer from one institution to another; increasing inherent risk and risk of material

misstatement.

Colleges and Universities in recent years have moved a large part of their class offerings online. This could increase the risk

of material misstatement related to academic fraud and cheating.

Colleges and Universities often have a large amount of fixed assets and corresponding fixed costs. These institutions must

still cover these fixed costs during times of lower enrollment, increasing the risk of material misstatement.

Colleges and Universities are mostly not$-$for$-$profit organizations. These organizations are notorious for having poor

internal controls over cash receipts and disbursements; thus the auditor's most prudent course of action would be to not

submit a bid.