Accounting Multiple Choice Question – 10 September 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 – The company operates a profit-related pay scheme.

Factor 2 – The business of the company is cash-based.

Factor 3 – Financial statements contain balances with straightforward financial accounting requirements.

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 – High and Factor 2 – High and Factor 3 – Low
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 == > A profit-related scheme means that directors have the incentive to overstate profit and hence the accounts are susceptible to material fraud/error — > Therefore inherent risk is higher than normal. A cash-based business is more inherently risky than a non-cash-based business, as cash is susceptible by its nature to theft and omission. Where balances in the financial statements have straight-forward financial accounting requirements, the susceptibility to material error or misinterpretation is reduced.
3. Not correct
4. Not correct

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