Question

Which of the following is not a primary reason for obtaining a good understanding of the client's industry and external environment?

A) Risk associated with a specific industry may affect the auditor's assessment of client business risk.
B) Risk associated with a specific industry may affect the auditor's assessment of acceptable audit risk.
C) Risk associated with a specific industry may affect the auditor's assessment of acceptable control risk.
D) Many control risks are common to all clients in certain industries.

Answer 1

Option D is not a primary reason because while knowing common control risks in an industry is helpful, it does not necessitate a deep understanding of the industry for audit purposes.

Step-by-step explanation:

The question concerns the importance of understanding a client's industry and external environment, particularly in the context of auditing and risk assessment. Based on the options provided, all but one are primary reasons for gaining a good understanding of the client's industry and external environment.

Option D (Many control risks are common to all clients in certain industries) is not a primary reason for understanding the industry and external environment because while industry-specific risks can affect the assessment of client business risk, acceptable audit risk, and acceptable control risk, the commonality of control risks across clients in an industry does not inherently necessitate understanding the industry for audit purposes.

The knowledge of common control risks helps the auditor to consider these risks when planning and performing the audit, but it does not require a deep understanding of the industry as such.