Case Study: Gold Explorer Inc.
Client name: Gold Explorer Inc. Schedule :X-1
Audit area: Risk Assessment Preparer :M.X
Balance sheet date: xx/xx/xx Date: 01/01/2012
Raj, The following memo addresses the risk assessment of one our clients, Gold Explorer Inc.; a major public Canadian gold mining company. The firm has been auditing this company for the past 8 years, in which very few misstatements were discovered and where management integrity was never a concern. However, in this fiscal year, the audit of Gold Explorer Inc will be more challenging because of increases in inherent risk and lower levels of acceptable audit risk, resulting from different events, mainly a merger with a major U.S. gold company and a significant writedown of ‘PPE’. In the following parts of the memo, an analysis of audit risk, inherent risk and materiality will be described in detail.
Part 1:
Audit Risk
The first factor affecting audit risk is the (1) …show more content…
Before determining the amount of evidence and the types of testing required (relates to detection risk), control risk will have to be examined. I believe that the firm should continue its relationship with Gold Explorers Inc. based on past experience and the need to provide reliable information to financial statement users, unless we can replace are engagement with companies that are a lot less risky and that provide the same earnings. It is also important to note that our engagement with the company has become ‘routine’ and therefore the independence analysis should put particular emphasis on the familiarity criteria and implement safeguards if
Audit area: Risk Assessment Preparer :M.X
Balance sheet date: xx/xx/xx Date: 01/01/2012
Raj, The following memo addresses the risk assessment of one our clients, Gold Explorer Inc.; a major public Canadian gold mining company. The firm has been auditing this company for the past 8 years, in which very few misstatements were discovered and where management integrity was never a concern. However, in this fiscal year, the audit of Gold Explorer Inc will be more challenging because of increases in inherent risk and lower levels of acceptable audit risk, resulting from different events, mainly a merger with a major U.S. gold company and a significant writedown of ‘PPE’. In the following parts of the memo, an analysis of audit risk, inherent risk and materiality will be described in detail.
Part 1:
Audit Risk
The first factor affecting audit risk is the (1) …show more content…
Before determining the amount of evidence and the types of testing required (relates to detection risk), control risk will have to be examined. I believe that the firm should continue its relationship with Gold Explorers Inc. based on past experience and the need to provide reliable information to financial statement users, unless we can replace are engagement with companies that are a lot less risky and that provide the same earnings. It is also important to note that our engagement with the company has become ‘routine’ and therefore the independence analysis should put particular emphasis on the familiarity criteria and implement safeguards if