Comptronix Corporation Case 4.2

1. The audit risk model is composed of four risks. The planned detection risk is a factor of inherent risk, control risk, and acceptable audit risk. Planned detection risk is the risk the auditor fails to detect misstatements and will increase or decrease dependent on the level of risk in the other three factors. If the auditor determines it is expected that misstatements is highly likely than inherent risk increases and create a higher demand for evidence. As the same with control risk, the weaker the internal controls the higher the planned detection risk will be. Acceptable audit risk on the other hand the lower the risk the lesser amount of evidence will be needed.

2. When assessing inherent audit risk, auditors will consider the integrity and attitude of management, influential personalities likely to have vested interest, management experience and knowledge of the finance team, and the level of pressure management is under to perform. During the audits of Comptronix the factors that I think were present to indicate a high inherent audit risk is mainly the influence of the three leaders with a significant vested interest. Not only did they have a significant amount of stock in the company they were also the founders with probable pressure to keep the company strong in fear of failure.

3. The five components of internal control are the control environment, risk assessment, control activities, information and communication, and monitoring. The control environment is the awareness of the controls from the people within the organization. Risk assessment is the company’s identification, analysis, and management of risk in the preparation of the financial statements. Control activities are the company’s policies and procedures to address any potential risk. Information and communication focuses on the systems used for creation of the financial statements and the communication of the outputs. Monitoring is the process in which the organization