...Identify four areas of inherent risk that might affect your audit planning. Would you say these are high risks or low? _ Risk of company accounting management. • The Company doesn’t have it owned accounting department. They have been using an accounting service for almost 3 years, as well as, working with an accountant in Seoul. • No information about the accountant in Seoul’s competency, only 1 person manages all account recording the company’s manufactory isn’t enough; especially, this is the manufacturing business where Inventory is one of important assets. _ Transportation Risk. • The manufactory of the company is in Seoul whereas its warehouse is in Vancouver. Transportation of goods is carried out by sea, which also gives rise to a number of risk factors associated with transportation of goods. • Sea transport in Korea doesn’t manage well which results in recently Sewol ferry disaster. • Risks to the shipping inventory can occur at sea (worse weather) and at ports, which are key nodes within the supply chain for unloading and loading goods (lost or damage goods) _ Bike industry developments risk • The company is very optimistic with the ideal that its sale will continue increasing. Kay has her owned reasons for it. However, nothing can guarantee that bike industry will keep developing. • Canada has no bike culture. Road barely has separated bike lanes. • Also, Bicycle sales in Canada regain footing and continue to rise since 2013 (Canadian Cycling Magazine)...
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...Module I - Assessment of Inherent Risk 1. See Figure BR.A-Biltrite’s organizational chart. Based on the chart and the case description, the following strengths and weaknesses should be identified: STRENGTHS: • The structure shows adequate separation within the CBIS function, i.e., systems analysis and programming are separate from data processing and control (implications for control risk assessment) • Separation is also maintained between the accounting and finance functions (implications for control risk assessment). • The internal audit staff is competent (but see weaknesses below, implications for control risk assessment). • The corporate controller’s former affiliation with the accounting firm enables him to better assist the audit team in completing various tasks (but see weaknesses below). WEAKNESSES: • Although competent, the internal audit staff reports to the corporate controller. This impairs audit independence within the organization and places too much emphasis on financial auditing relative to operational auditing. • Having once been employed by the auditing firm, the corporate controller is familiar with the firm’s auditing strategies and procedures. This knowledge could assist in concealing fraud from the audit team. • Given a manufacturing facility of this magnitude, a separate “plant assets” section within the accounting function appears to be warranted. • No mention is made of a tax person or a tax department within the company...
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...receive on Stable's premises. The Owner fully understands that Stable does not carry any insurance on any horse(s) not owned by it for boarding or for any other purposes, whether public liability, accidental injury, theft or equine mortality insurance, and that all risks connected with boarding or for any other reason for which the horse(s) in the possession of, and on the premises of Stable are to be borne by the Owner. Stable strongly recommends equine mortality insurance be obtained applicable to the subject horse(s) by Owner. THE STANDARD OF CARE APPLICABLE TO STABLE IS THAT OF ORDINARY CARE OF A PRUDENT HORSE OWNER AND NOT AS A COMPENSATED BAILEE. IN NO EVENT SHALL STABLE BE HELD LIABLE TO OWNER FOR EQUINE DEATH OR INJURY IN AN AMOUNT IN EXCESS OF FIVE THOUSAND DOLLARS ($5,000) PER ANIMAL. OWNER AGREES TO OBTAIN EQUINE INSURANCE FOR ANY ANIMALS VALUED IN EXCESS OF FIVE THOUSAND DOLLARS ($5,000), AT OWNER'S EXPENSE, OR FOREGO ANY CLAIM FOR AMOUNTS IN EXCESS OF FIVE THOUSAND DOLLARS ($5,000). OWNER AGREES TO DISCLOSE THIS ENTIRE AGREEMENT TO OWNER'S INSURANCE COMPANY AND PROVIDE STABLE WITH THE COMPANY'S NAME, ADDRESS AND POLICY NUMBER. FAILURE TO DISCLOSE INSURANCE INFORMATION SHALL BE AT OWNER'S RISK. 5. Hold Harmless. Owner agrees to hold Stable harmless from any and all claims arising from damage or injury caused by owner’s horse(s) to anyone, and defend Stable from any such claims. Owner agrees to disclose any and all hazardous or dangerous propensities of horse(s)...
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...Tesla Motors, Inc.’s 5 most valuable assets and their inherent risks Tesla’s most valuable assets are the ones in the company’s control and on which the company’s future growth will largely depend. This paper identifies: the CEO, customer loyalty, execution of strategy, workforce, and hardware and software systems security as the most important drivers of growth in the company’s control. 1. CEO Elon Musk: One of Tesla’s most valuable assets is CEO Elon Musk. Musk is a charismatic leader who is admired by the company’s employees. Talented people choose his company because they believe that, by working for a person with his track record, they will be a part of something great.1 Elon Musk made his millions selling PayPal to eBay. He is also the CEO and founder of Space X and serves as the chairman at SolarCity, where he plans to bring solar Photovoltaic (PV)...
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...RISK ASSESSMENT AND ENGAGEMENT SELECTION MEMO The purpose of this memo is to gain an understanding of the firm structure, its accounting and auditing practice, and its system of quality control. Based on the risk factors noted, the team captain will select engagements to be reviewed to reduce peer review risk to an acceptable level. Peer review risk consists of two parts: 1. The risk (consisting of inherent risk and control risk) that an engagement will not be performed and/or reported on in conformity with applicable professional standards in all materials respects, that the reviewed firm’s system of quality control will not prevent such failure, or both. 2. The risk (detection risk) that the review team will fail to detect and report on design and/or compliance deficiencies or significant deficiencies in the reviewed firm’s system of quality control. Firm Structure (number of offices, number of partners or equivalent, description of the firm’s A&A practice, etc.) INHERENT RISK FACTORS Please discuss the inherent risks of the firm under review. The following inherent risk factors should be considered and addressed below: 1. Circumstances arising within the firm (i.e. many engagements in specialized industries) 2. Circumstances outside the firm (i.e. new professional standards, regulatory requirements, adverse economic conditions, etc.) 3. Variances that many occur during the year (ie: significant increase in the number of audits performed...
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...AUDIT RISK MODEL Audit Risk (AR): risk that auditor will opine (render an opinion) with an unqualified opinion when unknown to auditor, FS are materially misstated (ultimate risk) Inherent Risk (IR): risk that errors (or misstatements or deviations) will occur," clientcontrolled Control Risk (CR): risk that client's internal control system will fail to prevent/ detect/correct errors ... clientcontrolled Detection Risk (DRI_ risk that auditor's procedures will fail to detect errors ... auditorcontrolled AR IR * CR * OR Audit risk = inherent risk * control risk * detection risk Audit risk: always set priority at a low level (.0 1, 05, 10) Inherent risk: controlled by client ... function of type of business, degree of liquidity, complexity Control risk: controlled by client ... relates to effectiveness of client's control system in preventing, detecting, and correcting errors. Detection risk: controlled by auditor ... function of nature, timing, and extent of audit procedures applied ... allowable or acceptable Solution Set: (1) Detection risk = audit risk / (inherent risk * control risk) (2) Detection risk low ... the more evidence you have to collect (3) Detection risk high ... the less evidence you have to collect Audit Risk: risk that auditor issues unqualified opinion when statements are materially misstated, audit risk and detection risk exactly related. IR/CR and detection risk inversely...
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...considered reliable and if so, whether to use them in the audit. c. Engagement risk is increased: The auditor would want to want to place a heavier reliance on documents prepared or reviewed by those outside of the business (ex: the bank associated with the business). d. Inherent risk is increased: The determination of reliability must be done with a much greater deal of care, as there is now a higher chance of material misstatement. e. Control risk is decreased: The auditor would be able to place a heavier reliance on documents created and used internally (i.e. not reviewed by outsiders). 2) Inquiry of knowledgeable persons within or outside the entity a. Nature: To obtain sources of information (ex: personnel, attorneys, customers, etc.) upon which the auditor may make inquiries pertaining to various aspects of the audit engagement. b. Purpose: To gain insight on the material upon which a business is being audited. c. Engagement risk is increased: The need for written representation from clients becomes much higher. As there is an increased risk of liability, oral representation would not provide the evidence needed to prove innocence. d. Inherent risk is increased: The auditor would pay special attention to the financial statement confirmation portion of the representation letter. They would also likely get into contact with the client’s lawyer, to assess going concern. e. Control risk is decreased: A representation letter from management in which the responsibility...
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...post-Sarbanes-Oxley technical guidance is available for free at http://www.pcaobus.org/Standards/index.aspx. In addition, a summary of the Sarbanes-Oxley Act of 2002 is also available for free at http://thecaq.aicpa.org/Resources/Sarbanes+Oxley/Sarbanes-Oxley+–+The+Basics.htm. II. Recommended Technical Knowledge PCAOB Auditing Standard No. 5 Paragraph #9 Paragraph #11 Paragraphs #29-30 Paragraph #32 Paragraph #A8 (in Appendix A) III. Classroom Hints This case provides students with an opportunity to apply their technical knowledge about inherent risk and fraud risk to Sunbeam's business model during the 1990's. By providing details about Sunbeam business during this time, students are able to see the relationship between an audit client's business strategy and inherent risk assessment at the financial statement assertion level. In addition, this case provides students with an opportunity to think about fraud risk assessment during times of significant change at an audit client. To meet these objectives, this case illuminates a number of relevant issues about the development of Sunbeam. In particular, the case focuses on the changes that occurred at Sunbeam after hiring Albert J. Dunlap as its chairman and CEO in 1996. We believe it is essential for students to carefully read over the recommended technical knowledge, along with this case reading. The educational psychology literature suggests that the acquisition of technical/factual type knowledge increases...
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...Identification of specific considerations from Parts I and II b. Assessment of acceptable audit risk c. Identification inherent risks INTEGRATED CASE APPLICATION — PINNACLE MANUFACTURING: PART III (1) Controls (2) Deficiencies (3) Control risk Assessment Integrated Case Application- Pinnacle Manufacturing I. Organizational History Pinnacle was set up in 1996 in Pithampur, near city of Indore in Madhya Pradesh (INDIA). Over the last several years the company has continuously invested in and expanded its technology partnerships, manufacturing systems, product range and clientele to emerge as India’s largest commercial vehicle, bus seating and Interiors Company. [pic] INTEGRATED CASE APPLICATION — PINNACLE MANUFACTURING: PART II a. Identify specific considerations from Parts I and II of the case that affect your assessments of engagement risk and acceptable audit risk. Use each of the three factors in the text to categorize your conclusions: ▪ External users’ reliance on financial statements ▪ Likelihood of financial difficulties ▪ Management integrity Definitions (from textbook) Engagement risk is the risk that the auditor or audit firm will suffer harm after the audit is finished, even though the audit report was...
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...1 Session 4 Audit Planning; Materiality and the audit risk model Auditing: Principles and Methods 2 After studying this session you should be able to: 1. Discuss why adequate audit planning is essential 2. Make client acceptance decisions and perform initial audit planning 3. Gain an understanding of the client’s business and industry 4. Assess client business risk 5. Perform preliminary analytical procedures 6. Apply the concept of materiality to the audit 7. Define risk in auditing and the audit risk model Auditing: Principles and Methods 3 8. Consider the impact of engagement risk on acceptable audit risk 9. Discuss the relationship of risks to audit evidence 10. Answer the Review Questions Auditing: Principles and Methods 1. Audit Planning 4 Why is adequate audit planning essential? “The auditor must adequately plan the work and must properly supervise any assistants”. There are three main reasons why the auditor should properly plan engagements: to enable himself to obtain sufficient appropriate evidence, to keep audit cost reasonable and to avoid misunderstanding with the client. Auditing: Principles and Methods 1. Audit Planning 5 An important part of audit planning is assessing acceptable audit risk and inherent risk because it helps determine the amount of evidence that will need to be accumulated and staff assigned to the engagement. Acceptable audit risk is a measure of how willing the auditor is to accept that the FSs...
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...users and matter that can affect professional judgment. Audit risk model provides the foundation for the current emphasis on the risk-based audit account balance or class of transaction. Audit risk model can be specified as, AUDIT RISK = INHERENT RISK x CONTROL RISK x DETECTION RISK Inherent risk is the measure of the auditor’s assessment of the possibility that there is material misstatement in an account balance before taking into account the effectiveness of internal control. Control risk is the risk that material misstatement will not be prevented or detected on a timely basis by an entity’s internal control. Detection risk is the risk that the substantive audit procedures performed will not detect a material misstatement that exists in an account balance or class of transactions. 2. C) i) Inherent risk incurred from enviroment of business or likehood that a material misstatement exist in the financial statement without any consideration of internal control.it is due to economic downturn, the slow collection of debt from the government has increased the level of debt. ii) control risk is the that material misstatement that could occur will not be prevented or detected and corrected by in ternal controls. In this case,it occur when the company do not have proper internal control, the management use manual accounting system and the plan to upgrade it to computerized system. iiI) client risk is because the decision is made by the cleint. It can be seen when...
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...a. Identify specific considerations from Parts I and II of the case that affect your assessments of engagement risk and acceptable audit risk. Use each of the three factors in the text to categorize your conclusions: External users’ reliance on financial statements After analyzing Pinnacle’s Income statements and other supporting documentation we concluded that the company has a low risk for failure in the next 12 months. Due to Pinnacle’s size and the field on which it performs (technology and manufacturing ), external users will rely significantly on the financial statements to gain assurance of the company’s current state and its future prospects. In addition, the amount of liabilities documented on Pinnacle’s financials make it more likely for investors and parties of interest to leverage the company’s income statements and balance sheets to help them decide on future investment option. Likelihood of financial difficulties Once the audit is completed and the audit is reported is issued , there is a significant risk for Pinnacle to experience financial difficulties included but not limited to bankruptcy. Based on this assumption, the engagement risk level should be increased and the acceptable audit risk should be issued. Management integrity Pinnacle’s Management Team has not demonstrated consistent ethical judgment in many of their choices. They have, to a certain extent. In addition, the organization’s lack of a clear stance regarding...
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...nerdypupil.com/product/acc-375-week-1-discussion-question-2/ Contact us at: nerdypupil@gmail.com ACC 375 WEEK 1 DISCUSSION QUESTION 2 Explain the different types of risk, such as audit risk, inherent risk, control risk and detection risk. How can a company assess its fraud risk? Home Work Hour aims to provide quality study notes and tutorials to the students of ACC 375 Week 1 Discussion Question 2 in order to ace their studies. ACC 375 WEEK 1 DISCUSSION QUESTION 2 To purchase this visit here: http://www.nerdypupil.com/product/acc-375-week-1-discussion-question-2/ Contact us at: nerdypupil@gmail.com ACC 375 WEEK 1 DISCUSSION QUESTION 2 Explain the different types of risk, such as audit risk, inherent risk, control risk and detection risk. How can a company assess its fraud risk? Home Work Hour aims to provide quality study notes and tutorials to the students of ACC 375 Week 1 Discussion Question 2 in order to ace their studies. ACC 375 WEEK 1 DISCUSSION QUESTION 2 To purchase this visit here: http://www.nerdypupil.com/product/acc-375-week-1-discussion-question-2/ Contact us at: nerdypupil@gmail.com ACC 375 WEEK 1 DISCUSSION QUESTION 2 Explain the different types of risk, such as audit risk, inherent risk, control risk and detection risk. How can a company assess its fraud risk? Home Work Hour aims to provide quality study notes and tutorials to the students of ACC 375 Week 1 Discussion Question 2 in order to ace their studies. ACC 375 WEEK...
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...doctrine of assumption of risk and the applications to this case. The appellate court denied their motion for a new trial and stated “that the sports injury statute applied to participants in any sport.” The Assumption of Risk doctrine states that “when a risk or danger is obvious such that it is widely known by reasonable people under the particular circumstances and necessary such that it is impossible or unreasonably difficult or expensive to eliminate, the person engaged in the dangerous activity assumes those obvious and necessary risks,” such as with the risks of falling in downhill skiing and risk that when done in groups other skiers will fall. The plaintiff in attempt to appeal stated that the assumption of risk only applied to the ski resort operators and their actions not that of other skiers, and that the defendant could be accountable for comparative negligence, as the skier was negligent and that negligence caused the plaintiff’s injuries.The sports injury doctrine, relating to 12 V.S.A. § 1037 “which established that there are inherent dangers to be accepted by skiers as a matter of law.” The motion for a new trial was denied and “ found that the sports injury statute applied to participants in any sport,” not just the operators. “While skiers fall, as a matter of common knowledge, that does not make every fall a danger inherent to the sport. If the fall is due to no breach of duty on the part of the defendant, its risk is...
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...Group 5 | Apollo Shoes Case Study | Parts 1 - 4 | | Brendan Fitzpatrick, Hui Liu, Yingqi Liu, Noushin Mousavi, Timothy Ryan & Pei Yan | 10/1/2013 | | Table of Contents Part 1: Staffing Assignment 2 Part 2: Audit Risk 2 Inherent Risk 2 Control Risk 3 Audit Risk Conclusion 4 Part 3: Materiality 4 Part 4: Analytical Review 4 Part 1: Staffing Assignment After looking over the preliminary work papers regarding the audit for the client, Apollo Shoes (Apollo), it is evident that we will require the help of industry specialists to complete our audit. First off, we will need a tax expert to come in and help with the audit. Our audit team has some experience with tax, but nothing past a basic level. Due to this, a tax expert will need to be brought in to audit Apollo’s tax documents. We will also require the assistance of a manufacturing expert, preferably somebody with experience in the shoe industry. Apollo recently started to manufacture some of their products in house and this will be the first time the manufacturing department will be audited. We need somebody, with knowledge of accounting for manufacturing operations, to help audit the manufacturing branch. In mid-2010, Apollo implemented a new computer system to aid the business. Due to this, we need to bring in an IT specialist. Our partner Mr. Anderson is extremely unfamiliar with the computing process, so it will benefit not just this audit, but our firm as a whole to bring in an...
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