ADM 4341 Study Guide - Final Guide: Market Saturation
28 Sep 2018
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Nonfinancial variables
What are 5 Non-financial factors or variables that auditors must consider when planning an audit?
1. New accounting, statutory, or regulatory requirements: audit clients are more likely
to misapply new rules and regulations (having accounting implications) than rules and
regulations that have been in effect for some time.
2. High degree of competition or market saturation: highly competitive market
conditions may induce client management to adopt relatively high-risk strategies,
resulting in more volatile operating results. (Significant and/or sudden changes in a
client’s operating results complicate the selection and application of audit procedures.)
3. Declining industry with increasing business failures: by definition, clients in
financially distressed industries pose a higher than normal concern for risk; this higher
risk must be evaluated by auditors and considered when they are deciding the type of
audit report to issue.
4. Rapid changes in the industry, such as changes in technology: sudden technological
changes can pose major valuation concerns for a client’s inventory and other assets.
5. Background of a client: if the client has a reputation, changes auditors frequently, have
to treat this as higher risk.
