Auditing Chapter 3, Problem 47
47)
1) Inherent risk in this situation is not zero because he states that he has never seen an accounting adjustment recommended which could mean that there has been something that happened that was immaterial that it didn’t need to be adjusted. If the inherent risk was zero there wouldn’t been the chance that anything could go wrong and to give it a zero risk there is no point then to audit the firm.
2) In chapter three they mention that control risk should not be assessed so low that the audit team places complete reliance on controls and does not perform any other audit work. By stating this it shows that it is incorrect to assume the control risk is zero. Zero should never be the control risk if it is then it wouldn’t be neseccary for the auditor to do any work.
3) Fields is incorrect to not give any thought to inherent risk. Knowing the inherent risks leads us to know about the characteristic of the business, their major types of transactions, and the effectiveness of the way they account for their transactions. Without this knowledge it would be difficult for Fields to do a good audit and know what to look for. Fields hinders himself from knowing the proper way to audit the client.
4) With all the movement in personnel, it should have taken Shad longer to finish the audit than the year before. The control risk is extremely high with the accounting personnel’s all resigning during the year and with all the inexperience accountants taking over. The comptroller resigned in disgust and the journals were a mess. With all this going on it would be more difficult to perform the audit, which would lead to the audit taking more time to account for the higher control
1) Inherent risk in this situation is not zero because he states that he has never seen an accounting adjustment recommended which could mean that there has been something that happened that was immaterial that it didn’t need to be adjusted. If the inherent risk was zero there wouldn’t been the chance that anything could go wrong and to give it a zero risk there is no point then to audit the firm.
2) In chapter three they mention that control risk should not be assessed so low that the audit team places complete reliance on controls and does not perform any other audit work. By stating this it shows that it is incorrect to assume the control risk is zero. Zero should never be the control risk if it is then it wouldn’t be neseccary for the auditor to do any work.
3) Fields is incorrect to not give any thought to inherent risk. Knowing the inherent risks leads us to know about the characteristic of the business, their major types of transactions, and the effectiveness of the way they account for their transactions. Without this knowledge it would be difficult for Fields to do a good audit and know what to look for. Fields hinders himself from knowing the proper way to audit the client.
4) With all the movement in personnel, it should have taken Shad longer to finish the audit than the year before. The control risk is extremely high with the accounting personnel’s all resigning during the year and with all the inexperience accountants taking over. The comptroller resigned in disgust and the journals were a mess. With all this going on it would be more difficult to perform the audit, which would lead to the audit taking more time to account for the higher control