Johnsonville CPAs are currently working on the audit of Townsend, Inc., a retailer of fine bedding and other linen products. The audit managers assigned to the audit are attempting to determine where potential risks of material misstatement may be for the client. Which of the following statements would be true at this juncture? Johnsonville CPAs are at the risk response phase of the audit, and are likely to perform risk and materiality assessments in order to determine where risks of misstatement may occur. Johnsonville CPAs are most likely at the risk assessment phase of the audit, and are attempting to determine where risk areas may be in order to form the audit plan. Johnsonville CPAs are most likely at the client acceptance stage of the audit, and are determining if Townsend represents a client they wish to accept. Johnsonville CPAs are at the audit risk phase of the audit, and are looking to determine if the client possesses any external risk factors that could factor into the audit. ellow is a junior auditor assigned to audit Rainbow Company who is engaged in providing internet service to its customers. During tr lanning meeting of the external audit team, they were discussing their strategy in terms of understanding their client. Not having any revious audit experience, Yellow asked the audit manager as to what level of knowledge and understanding they need to acquire in ne engagement. What should be the response of the audit manager to Yellow? Understanding the entity and its environment entails obtaining knowledge at the client-level, industry-level and general business environment level since all these levels influence inherent risk. We should focus our efforts on obtaining knowledge at the client-level. In this way, we will not be wasting time and effort in understanding the industry in which it operates which is unnecessary. Gaining an understanding of the entity and its environment varies from one engagement to another. The level of understanding required from the external auditors will depend on what the client requires. It is enough that we understand at the client-level only so long as we identify both entity-level risks and transaction-level risks. These two can compensate for our lack of understanding at the industry-level. Janilla, an external auditor with five years of experience in the automotive industry, was assigned to audit the financial statements of Merry Market, a large supermarket which caters to a lot of customers. Vanilla is in the process of understanding how Merry Market neasures performance to know how it affects the auditor's risk assessment. During an inquiry, the accounting manager of Merry Market suggested to Vanilla to use the same understanding of Key Performance Indicators (KPIs) from previous experience in the atomotive industry so as not to waste too much time in gathering new information about Merry Market's KPIs. How should Vanilla espond to this? Applying the same understanding of KPIs from what I have seen in the automotive industry to Merry Market is not advisable. Not all clients use the same KPIs and, therefore, the risk assessment will be different depending on the circumstances surrounding a specific client or industry. I do not think this suggestion makes sense as the automotive industry is highly different from how things run in a supermarket. However, if your concern is the time it takes to get this information, we can skip this audit procedure as we prioritize the suggestions of our clients. We can use the same understanding of KPIs so long as you agree to adjust your KPI measurements to that of the automotive industry moving forward. In this way, we won't need to understand your current ways of measuring KPIs and we can skip this step. That is a good idea! Since you are also engaged in selling products in the same way as the automotive industry, the way you measure performance should be relatively the same
