Auditing Theory and Risk Assessment Practice Free Sample

Questions: 1. List and discuss several factors that would have contributed to an increased subjective risk assessment at the financial statement level. Also, identify which of these factors may be identified during the strategic business risk assessment. 2.Inherent risk factors that would have contributed to an increased inherent risk assessment at the account balance level. 3.Assessment of the issue of going concern as either low, medium or high. Answers: Introduction Examination of business financial operation through auditing has been a major concern in the line of business. For any business entity to identify its level of growth and development there must be a proper assessment conducted in the firm. Most of the operations in the economic sector highly depend on the nature of auditing, therefore, several principles have then been developed to assist in the elimination of risks and perils which may be accrued during auditing (Lpez and Peters 2012). These hypothesis have been designed by worlds financial reporting framework establishments such as GAAP and IFRS to direct auditing practices. Several policies have also been developed to assist auditors in making corrections on the risks which may face them during financial assessment. The way of examining and duty of review group guarantees the accomplishment of an organization inside the business or worldwide business sector. In the later past, hypotheses like going concern has been produced. Usage and routine of these stipulated issues stay in the hands of examiners and the leading group of administration of any given entity. The extent of this paper explores the use of these present issues in One.Tel Company in Australia. The organization has been in operation in media transmission industry since May 1995 in the wake of being propelled in Sydney. The paper further examines natural danger in the organization budgetary reports and the issue of going concern. 1. Understanding of Inherent Risk Inherent risk is one of the review dangers oversaw under risk evaluation. Review hazard includes three sorts of dangers. These dangers are inherent danger, control dangers and the detective hazard. Assessment risks is considered as the result of the three dangers as shown previously. It might be experienced amid evaluating execution which for this situation is One.Tel Telecommunication Company. Inherent risk is subsequently a segment of the review which comes as a consequence of material misquote inside the money related articulation. Incorrectness happens in an organization's assessment reports due to underutilization of important control measures (Chung et al. 2012). Inherent dangers emerge for the most part because of the mistake of oversights in the adjustments of the organization books of records. On account of One.Tel Company, intrinsic dangers may have emerged because of disappointments and poor utilization of the control measures. The event of disappointments because of inher ent might be as an aftereffect of oversight and fake practice during auditing. Inherent risk can be high or low within an organizations financial reports depending on the prevailing business environments. Some of the factors which may lead to high inherent risks are as discussed below. Factors Which Affect Inherent Risk at the Financial Report Level Legitimacy of Company Administrators The expansion in inherent risk in One.Tel Telecommunication Company might be as a consequence of the inadequacy of the leading group of the Directorate. The organization's administration is made of nine individuals having distinctive powers and benefits. The board is made up of five none-official individuals shaping up most of the board individuals. There are other four official individuals having a full order to everything inside the organization (Coetsee 2010). The rate at which the inherent risk is increasing in One.Tel media transmission organization is high as indicated by the case of study. The board of management is committed to a great deal of obligations which includes: approval of corporate and budgetary procedures, distinguishing and addressing issues of great concern confronting One.Tel as an organization, checking on and observing administration procedures and reporting instruments, regulating money related execution and arrangement of the senior administration group. Th e organization has developed as far as possible where the administration group of nine personalities can't meet every one of their commitments. The chiefs will probably conceal their poor notorieties, along these lines, neglecting to create important articulations amid evaluating prompting an expansion in the characteristic danger due to poor administration. Management Understanding, Alertness and Instabilities During Financial Assessment Period The wastefulness in the administration of the organization and absence of learning encourages wrong readiness of the budgetary report prompting an increment in the inherent risk. Once the examiner recognizes standard workforce turnover in basic administration areas, there is possibilities of arising inherent risk in light of the fact that honest identities are prone to leave their official positions as opposed to proliferate some extortion. This generally happens when the organization extends quickly as reflected on account of One.Tel Telecommunication Company (Herda and Lavelle 2012). Unusual Pressure on Organization Management There may be inducements for administration to misstate the financial report increasing the inherent risk. The incentives in can be either from the internal environment or the external environment (Kerler and Brandon 2010). The incentives may be cash flow problems, poor liquidity rationing, poor operating results due to management limitation and work overstretch and connection of management compensation pay schemes tied to share capital and earnings. This may lead to an increase in the inherent risk since management may be induced to misstate operating and financial statements to acquire some bonus. Nature of the Kind of Venture One.Tel is Operating Various issues have been acknowledged in the business or industry in which One.Tel Company operates. The company has a complex investment organization, which is an aid to increase inherent risk. The existence of related-party transactions such as the company shareholders would also increase inherent risk as the operations are not with the self-regulating party (Al Nawaiseh and Jaber 2015). The company has got capital share transactions which require a lot of financial know-how to audit since such operations are complicated. The company operates in larger geographical context and generates a lot of income through sales. In review of the given case, One.Tel Company gained huge sum of money in the previous trading period. The company received a total income of $687.2 million where $429.4 million revenue came from Australia, $144.7 million UK, $15.1million France, $ 36.6 Netherlands, Hong Kong $39.2 and $ 13.2 million from other trading regions. This indicates how Telecommunication compa nies have probably recompenses until they inaugurated a standing, and a trustworthy income source inherent risk will keep on rising. Telecommunication industry is facing a challenge which requires a company in the industry to apply controls mechanism to be stable and remain relevant in the industry. Since new economies and unstable economies result in high inherent risk than stable economies. Factors Affecting the Industry in which the Entity Operates Variations in commercial and competitive environments would be anticipated to have a significant influence on the inherent risk of an entity like one.tel in the telecommunication industry. Factors such as imbalance in the revenue and growth in some telecommunication service providers may lead to a rise in the inherent risk during financial statement preparations. Throughout risk assessment stage the company audit team goes through the risks identified like the inherent risk discussed above. The team or the auditor evaluates the factors of the risks through fair evaluation (Martin 2013). Evaluation of risks results into two types of risks which in this case is an inherent risk. The identified risk is a component of material misstatement of the financial statement motivated by several factors. Factors relating to fraud can be identified during strategy development process whereas those factor that increase inherent risk due to fraud identifiable via the AU section 316. Accounts likely to Require Adjustment When the books of accounts are being adjusted to fit to the demands of business in the recent trading period there is likeness of errors to occur. These errors may be due to omissions, oversight, imaginary conclusions by accountants or as a result of errors carried forward. In such situations the rate of inherent risk is considered to be high as a product of errors. Complexity of Fundamental Transactions If the deal during a trading period is complicated, it is likely that there will be an increase in inherent risk. In consideration of One.Tel Telecommunication Company, the books of accounts indicates complex types of transactions such as the shareholder's inequity, reserves and dividend. Challenging transactions are prone to errors as they are difficult to understand leading to high inherent risk at the accounting level. Conclusion Involved in Determining Account Balances The kind of judgment made by the auditor during the process of balancing of auditors is likely to influence inherent risk. In case the account report on a given transaction may be induced by some factors within the company (Reichelt and Wang 2010). These judgments can be affected by the type of operation and the management pressure. Susceptibility of Assets to Loss or Misappropriation The susceptibility of the companys assets to loss or misappropriations leads to increased inherent risk at the accounting level. During the transaction entries, it is evident that simple misappropriation of an asset result into accelerated inherent risk. For instance taking misplacement of an asset to liability may lead to an increase in the inherent risk (Herd and Lavelle 2014). The Occurrence of Unusual and Complex Transactions, Particularly at or near Year-End The manifestation of substantial trades during the trading period has a possible increase the inherent risk (Skinner and Srinivasan 2012). When an unfamiliar transaction occurs precisely towards the end of a trading period, there are high chances of errors in the books of accounts. Such different operations may be a challenge to the auditor and accountants and may result in high inherent risk. Transactions not Subject to Usual Processing The degree of an upturn in the inherent risk is high at the bookkeeping level when we make dealings which require unfamiliar processing. In the event of such case the auditor of a business entity like One.Tel Telecommunication Company may make mistakes leading to an increase in inherent risk as a result of limited knowledge of such transactions. 3. The ongoing concern builds on the auditors' assessment whether low, medium or high in correlation to inherent risk and control risk (Francis 2011). The detection risk during the evaluation is maintained at the lowest level to keep the audit risk at the recommended rate. Minimum detection risk can be accomplished through scope test enhancement. Due to the argument, it is evident that the going concern can be either high, medium or low based on the three type of risk. The issue of going concern in relation to One.Tel Companys case can be considered to be high. Inherent in the companys financial statement is deemed to be high since the company operates in a highly controlled industry. In this situation, the companys going concern is considered to be high (Chang, Dasgupta and Hilar 2009). Other factors such as the detective risk and control risk are seen to be high according to the nature of the business entity. In application of the knowledge acquired it is clearly evident that the g oing concern can be high, low or medium. Conclusion It is clear from the above discussion that the rate of going concern depends more on the kind of risks in the financial statement. In the event of low audit risk, the nature of going concern remains low whereas when the types of a risk is medium or high, the going concern is either low or high. Even though the assumption may be correct, it is hard to regulate the following circumstances that may lead to the continuous application of a going concern (Knechel et al. 2012). The nature of a going concern in accompany depends on the application of the stipulated financial framework. The above discussed issues should therefore be given proper assessment as per the financial stipulated framework of GAAP and IFRS. References Al Nawaiseh, M.A.L. and Jaber, J., 2015. Auditing subsequent events from the perspective of auditors: study from Jordan. 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