Use information from the following scenario to answer Questions #1-6.

You are currently planning the audit of ABC company. You have audited ABC for the previous five years. ABC is a technology company that is currently going through an IPO. Because of its inexperience complying with SOX 404 requirements, ABC still has very poor internal controls overall, although controls for sales are strong and have been found to operate effectively during interim testing. Most of its accounting procedures involve complex accounting and the heavy use of estimates. ABC is frequently featured in the financial press. Pre-tax income for the current year under audit is $10,000,000. ABCs largest and most challenging account balances are sales revenue ($143,000,000) and research and development expense ($25,000,000).

Flag question: Question 1

Question 13 pts

Based on the information above, which of the following is true about ABCs inherent risk?

Group of answer choices

The use of complex accounting and estimates increases ABCs inherent risk assessment.

It is appropriate for your team to set inherent risk at low in order to decrease detection risk

The strong internal controls for revenue, which is a risky account, will influence the assessment of inherent risk.

ABCs struggle with internal controls increases its inherent risk assessment.

Flag question: Question 2

Question 23 pts

Based on the information above, a reasonable benchmark for overall/planning materiality would be:

Group of answer choices

$100,000

$500,000

$1,000,000

None of the above.