Use the Internet or Strayer Library to research at least two(2) companies that have experienced...

Use the Internet or Strayer Library to research at least two (2) companies that have experienced downgrades related to stock performance or bond ratings within the last five (5) years. Next, analyze the primary ways in which auditors would use the information from downgrades to assess business risk or evaluate the likelihood that the downgrades would impact the auditor's assessment of the client's business environment. Ascertain the major ways in which this information would impact the audit risk model equation. Support your position.
According to an article in the CPA Journal, the auditor considers reliability of audit evidence collected and the reliability of that evidence to reduce the risk of financial statements containing undetected material errors. Compare and contrast at least two (2) types of evidence, and make a recommendation as to which you believe is the most reliable in reducing risk. Support your position.

Expert Solution

Two companies which have experienced downgrades related to stock performance or bond ratings during last 5 years are:-

1. Sony Corporation

2. Linked In

Downgrades provide the auditors a idea of future viability of the company. Downgrades suggest that debt of the company is more than its Receivable. or assets or that the company has improper management. Hence this information would enable the auditor to form an opinion that the business risk is high for lenders and even the investors may not get their money back.

It is true that the auditor considers reliability of audit evidence to reduce the risk of financial statements containing undetected material errors. Here is an comparison of 2 such evidences:-

1. Confirmation from sundry debtors as to balances and observations that they in most cases match with balances as in books of client. This would be very comprehensive and more conclusive in forming an opinion and reducing risk of financial statements containing undetected material errors

2. Verification of sale invoices :- This auditor can teat verify but this would not be as much helpful as the above evidence

venereology answered 2 years ago

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