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Auditing Case

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When an auditor is going to complete an audit one of the first things the auditor must evaluate is the amount of inherent risk. Inherent risk is the risk that material misstatements might be within the financial statements without looking at the company’s internal controls that are in place. This is the one form of risk that the auditor doesn’t have any control over; the auditor will always have to deal with some kind of inherent risk. There are many different aspects the auditor can use in assessing inherent risk but the auditor must know no matter what it will always be present.
Within the course we have discussed some of the factors that will help the auditor evaluate inherent risk and with that the amount of sufficient and appropriate evidence needed to be collected. Below are a couple more of the more relevant ones to the Comptronix’s Case.
The first factor to consider is the industry of the client’s business operations. When conducting an audit the auditor should understand the company and how day to day operations are run. Also they should understand the direct risk associated with the industry the company deals in. With Comptronix they produce circuit boards, a great deal of electronics have a very fast lifespan and an auditor should watch how the company values and accounts for such boards in their inventory. The more risky the business looks based on the results collected, the hire the inherent risk should be set for that type of company in the industry.
Another factor that can influence inherent risk is the client’s motivation and presence of related parties. The auditor should always look at transactions that go n between related parties to ensure that the transactions have been recorded correctly. In this case Comptronix had a member of the board of directors’ who was the VP of manufacturing at a major customer the company did business

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