Question

TWD's bank has a loan officer who meets regularly with TWD's CEO and controller to monitor TWD's financial performance. The audit risk would:

A)Increase, as the bank's involvement may compromise the independence of the audit.
B)Decrease, as the bank's monitoring enhances the reliability of TWD's financial information.
C)Remain unchanged, as the bank's actions are unrelated to the audit process.
D)Fluctuate, depending on the size of TWD's outstanding loan with the bank.

Answer 1

The audit risk in this scenario would increase.

Step-by-step explanation:

The audit risk in this scenario would A) increase.

When a bank loan officer meets regularly with a company's CEO and controller to monitor the company's financial performance, it can compromise the independence of the audit. This is because the loan officer's involvement in reviewing the financial information may influence the audit process and potentially undermine the objectivity and impartiality of the auditors.

Increased audit risk can result in a higher likelihood of material misstatements or errors going undetected during the audit, which can undermine the reliability of the financial information.