Day: August 27, 2025

Tick and Co LLP, an audit and assurance firm, has the following factors to evaluate for a prospective client and decide whether it is high or low risk.

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

Factor 1 – Company has prudent accounting policies

Factor 2 – Company carries out unusual transactions

Factor 3 – Company currently has no finance director

Are these clients high or low risk?

Select ONE answer:

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

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 2

1. Not correct
2. Correct == > Prudent accounting policies would constitute a low-risk indicator as directors would appear not to be aggressive in interpreting accounting policies to enhance the performance portrayed by the financial statements. A company carrying out unusual transactions would be high risk, as each transaction would require a separate understanding, leading to a higher risk of error. Having no FD is a high-risk indicator – the staff in the function may not be supervised, and they may not have the skills or the knowledge to apply accounting standards and address the key risks in the systems of the company.
3. Not correct
4. Not correct

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