During the audit of Teddy Company, the external auditor, Spring, has noted from the planning session with the audit team that it is important to properly identify entity-level and transaction-level risks. However, as this is Spring's first audit engagement, Spring is having a difficult time making a distinction between the two, so he consulted with the audit manager for examples. Which of the following is the best response from the audit manager? Entity-level and transaction-level risks differ in terms of the amount of the misstatement. Risks of large misstatements will be considered as entity-level risks while small amounts will be transactionlevel risks. An entity-level risk is that which affects multiple accounts and assertions. An example is when a company is under pressure to maintain a certain return on assets ratio. A transaction-level risk is that which affects limited accounts and assertions. An example is when a company has a target level of sales so the risk of misstatement might involve both the sales and receivables account. An entity-level risk is that which affects multiple accounts and assertions. An example is when a company has a target level of sales so the risk of misstatement might involve both the sales and receivables accounts. During the audit of Teddy Company, the external auditor, Spring, has noted from the planning session with the audit team that it is important to properly identify entity-level and transaction-level risks. However, as this is Spring's first audit engagement, Spring is having a difficult time making a distinction between the two, so he consulted with the audit manager for examples. Which of the following is the best response from the audit manager? Entity-level and transaction-level risks differ in terms of the amount of the misstatement. Risks of large misstatements will be considered as entity-level risks while small amounts will be transactionlevel risks. An entity-level risk is that which affects multiple accounts and assertions. An example is when a company is under pressure to maintain a certain return on assets ratio. A transaction-level risk is that which affects limited accounts and assertions. An example is when a company has a target level of sales so the risk of misstatement might involve both the sales and receivables account. An entity-level risk is that which affects multiple accounts and assertions. An example is when a company has a target level of sales so the risk of misstatement might involve both the sales and receivables accounts