The integrity of
management and the quality of the company’s financial condition affects whether
or not an auditor wants to be associated with a client. This is engagement risk.
All of the factors, plus the quality of internal controls and the complexity of
the organization’s financial processes affect financial reporting risk. The
auditor must assess this risk as a basis for identifying areas most likely to be
misstated as well as a basis for determining the overall audit approach and
extent of procedures to be performed. Do you agree? Please explain.