a) Assume auditor has found that the clientsinventory becomes obsolete very quickly. Willthe auditor setinherent risk high or low? Also explain aftersetting the inherent risk what additionalmeasures auditor can takeregarding audit of inventory in this case.b) Materiality is a relative rather than absoluteconcept."- explain this statement with anexample.c) Though preparing engagement letter is notmandatory for an auditor, audit firms prepareengagementletter. Why?

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the auditor set inherent risk high or low setting th.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

a) Assume auditor has found that the clients
inventory becomes obsolete very quickly. Will
the auditor set
inherent risk high or low? Also explain after
setting the inherent risk what additional
measures auditor can take
regarding audit of inventory in this case.
b) Materiality is a relative rather than absolute
concept."- explain this statement with an
example.
c) Though preparing engagement letter is not
mandatory for an auditor, audit firms prepare
engagement
letter. Why?

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