Question

In making client acceptance decisions, the audit firm will consider:

A) inherent and control risk of the client.
B) audit risk to the CPA Firm.
C) the client's business risk and the risk of material misstatements in the financial statements.
D) CPA Firm's potential ongoing revenue from the audit client.

Answer 1

In making client acceptance decisions, the audit firm considers factors such as inherent and control risk, audit risk to the CPA Firm, and the client's business risk and risk of material misstatements in the financial statements.

Step-by-step explanation:

In making client acceptance decisions, the audit firm will consider multiple factors:

1. Inherent and control risk of the client: The audit firm will assess the risks associated with the client's internal controls and the likelihood of material misstatements in the financial statements.
2. Audit risk to the CPA Firm: The audit firm will evaluate the overall risk of performing the audit for the client, considering factors such as the complexity of the client's business and the potential impact on the CPA firm's reputation.
3. Client's business risk and risk of material misstatements: The audit firm will analyze the client's industry, economic conditions, and overall business risk to understand the likelihood of material misstatements in the financial statements.

The consideration of CPA Firm's potential ongoing revenue from the audit client may have some influence, but it is not a primary factor in making client acceptance decisions.