5 - 5-3 Business failure: it occurs when a business is...

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5-3 Business failure: it occurs when a business is unable to repay its lenders or meet the expectation of its investors because of economic or business conditions. Audit risk: it represents the risk that the auditor will conclude that the financial statements are fairly stated and an unqualified opinion can be issued when, in fact, they are materially misstated. When there is a business failure, it is common for statement users to claim there was an audit failure. Many auditors evaluate the potential for business failure in an engagement in determining the appropriate audit risk. 5-4 The prudent person concept: a person is responsible for conducting a job in good faith and with integrity, but is not infallible. The auditor is expected to conduct an audit using due care, but does not claim to be a guarantor or insurer of financial statements. 5-7 SAS 99 states that the auditor should assess the risk of material misstatements of the financial statements due to fraud. Based on this assessment, the auditor
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This note was uploaded on 08/12/2011 for the course ACCT 620 taught by Professor Smith during the Spring '11 term at Alabama A&M University.

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