Respond to each of the following comments
that you heard related to the audit of Swan Company, a public entity.
a. “We don’t need to consider the risk of material misstatement in our work because we
really can’t do anything to reduce that risk.”
b. “Because the client has not implemented effective internal controls, we need to gather
more reliable evidence. This means we need to test a greater number of transactions and
obtain more reliable forms of evidence.”
c. “We will really need to spend a lot of time and effort on this audit. Because this client has
just filed for a bond offering, we can’t allow for any misstatements in the financial statements.
We need to guarantee the accuracy of the client’s financial statements.”
d. “Because this company has $140 million in revenues, we really shouldn’t be concerned
about smaller accounts because they are not likely to have a major impact on the financial
e. “I know it will be more time consuming and expensive, but we are required to physically
inspect the stock certificates held by the client rather than obtain confirmation from
the custodian. After all, our own direct observation is more reliable than receiving a