Day: August 25, 2025

Tick and Co LLP, an audit and assurance firm, has the following two clients among its client portfolio.

For each client, select whether the inherent audit risk is high or low.

Client 1 – Big Brum Ltd is planning to list on the local stock exchange within the next two years.

Client 2 – Little Brum Ltd is currently facing financial difficulties and is seeking alternative forms of finance.

Are these clients high or low risk?

Select ONE answer:

1. Client 1 – High and Client 2 – Low
2. Client 1 – Low and Client 2 – High
3. Client 1 – High and Client 2 – High
4. Client 1 – Low and Client 2 – Low

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == >    Given its intention to list on the stock exchange, Big Brum Ltd may be motivated to show a better picture of itself than that which exists; hence, it is a high-risk client. Little Brum Ltd is also a high-risk client given that it is seeking alternative forms of finance — > It has the incentive to show itself as a healthier company than it is to attract the finance it requires.
4. Not correct

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