D-Merton Case Study
Person B is Liz Harris. She is the Audit and Risk committee chair. Her role in the company is to assist the board in the areas of statutory reporting, risk management systems, internal and external audit …show more content…
Identify and briefly describe TWO inherent risks, and TWO control risks of D-MERTON and explain how TYSL Accountants have responded to each risk, in planning the audit of D-MERTON (4 marks).
An inherent risk occurs when there is an omission or error in the financial report due to factors other than failure of control. In a company like D-Mertons, the transactions are very complex due to the nature of the business hence an inherent risk very likely to occur. From the video, it is proven that D-Merton is a company whose debts to equity ratio is very high which is usually accompanied by a high inherent risk which usually results in unstable earning due to various factors such as high interest. This is evident when the Board is discussing whether it will be possible for a complete overhaul. The board can be seeing raising issues of lack of funds and the lack of trust with the banks as well resulting in the loss of any option with the bank. The TYSL accountants here cannot react to this situation at that time as it was, presumably, already taken into account at the start of the fiscal year. Moreover, the video doesn’t specify any particular reaction from the accountants thus making my current answer an