Audit risk at the financial statement level

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Reference no: EM132765929

Question - A CPA, is considering audit risk at the financial statement level in planning the audit of a Company's financial statements for the year ended December 31, 2019. The Company is a privately owned entity that contracts with municipal governments to remove environmental wastes. Audit risk at the financial statement level is influenced by the risk of material misstatements, which may be indicated by a combination of factors related to management, the industry, and the entity.

Based only on the information below, indicate whether each of the following factors would most likely (A) increase, (B) decrease, or (C) have no effect on audit risk and the risk of material misstatement .

1. The accounting department has experienced a high rate of turnover of key personnel.

2. During 2019, the Company changed its method of preparing its financial statements from the cash basis to generally accepted accounting principles.

3. During December 2019, the Company completed a barter transaction with a municipality. The Company removed waste from a municipally owned site and acquired title to another

4. An initial public offering of the Company's stock is planned for late 2020.

5. During December 2019 the Company increased its casualty insurance coverage on several pieces of sophisticated machinery from historical cost to replacement cost.

6. During 2019, litigation filed against the Company in 2015 alleging that the Company discharged pollutants into state waterways was dropped by the state. Loss contingency disclosures that the Company included in prior years' financial statements are being removed for the 2019 financial statements.

Reference no: EM132765929

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