Question

Bond has audited TWD for five years. The audit risk would:

A)Increase, as long-term audit relationships may lead to complacency.
B)Decrease, as familiarity with the client enhances audit efficiency.
C)Remain unchanged, as audit risk is not influenced by the duration of the engagement.
D)Fluctuate, depending on changes in TWD's industry and business environment.

Answer 1

The audit risk would increase as long-term audit relationships may lead to complacency.

Step-by-step explanation:

The correct answer is A) Increase, as long-term audit relationships may lead to complacency.

When an auditor has been auditing a client for a long period, there is a risk of complacency, which means the auditor may become too familiar with the client's operations and overlook important audit evidence.

This can increase the audit risk, as the auditor may become less diligent in performing the necessary audit procedures.

In contrast, when an auditor is new to a client, they may be more diligent and thorough in their audit procedures, which can decrease the audit risk. Therefore, option A) is the correct answer.