Final answer:
An auditor needs to consider a client's discounting policies as an inherent risk factor because it affects proper revenue accounting and can jeopardize profit margins. These policies are closely related to the company's reputation and customer satisfaction, but the auditor's primary concern is the financial impact on the company's statements.
Step-by-step explanation:
When considering why an auditor should view a client's discounting policies as an inherent risk factor, it is important to recognize that discounting policies often have a significant impact on a company's financial statements. Firstly, appropriate accounting for discounts can affect reported revenues and therefore the overall financial health of the company. Secondly, if discounting policies are too aggressive, they could potentially jeopardize profit margins, which is of concern to auditors. Lastly, while establishing a good reputation and ensuring competitive pricing is crucial for maintaining customer loyalty, this is not directly related to the role of the auditor.
From a broader perspective, it's crucial to understand that the present discounted value is a key concept in finance that affects business strategies and policies. Businesses need to carefully weigh present costs against the future benefits and this requires a thorough understanding of discount rates and expected profits. Nevertheless, differences in opinion regarding future prospects can lead to different assessment outcomes, highlighting why discounting policy is a focus for audit risk assessment.