Choice "C" is correct. An auditor cannot audit inadequate accounting records (i.e., records that do not exist or are so poor that they cannot be relied upon).
Choices "a" and "b" are incorrect. The following factors would be considered when accepting an audit engagement and might require extensions of audit work, but are not factors that would prevent the financial statements from being audited:
a. | The complexity of the accounting system. |
b. | The existence of related party transactions. |
Choice "d" is incorrect. The operating effectiveness of control activities does not affect the auditability of financial statements, and it is not considered when accepting an audit engagement.
