The audit staff have recently completed risk assessment procedures to gain an understanding of Chocolate from Heaven

Question:

The audit staff have recently completed risk assessment procedures to gain an understanding of Chocolate from Heaven Inc.?s (CFHI) business and to identify risk factors relevant to the risk of material misstatement. (For further background on the company, refer to Question 6-42 on page 205.)a. For each risk factor below, decide whether each piece of information would fit into your assessment of inherent risk (IR) or control risk (CR), and whether it would increase or decrease the specified risk area.

image

b. Assuming acceptable audit risk is low, for each situation specific to CFHI listed below, assess Inherent Risk and Control Risk. Determine an appropriate level for Detection Risk and the resulting level of evidence. Use High, Low, and Moderate for your assessments.

Situation 1: Accuracy of recorded sales and valuation of receivables.CFHI sells goods to the United States and often transacts in US currency. The accounting clerk is inexperienced and not accustomed to recording foreign currency transactions.

image

Situation 2: Existence of equipment.All equipment is highly specialized and extremely large. For safety reasons, the equipment is also bolted to the floor in the warehouse. CFHI purchases new equipment once every three to four years.All purchases are authorized by David (the owner). Cheques are signed by both owners after completing a review of the supporting documents.

image

Situation 3: Existence of finished goods chocolate inventory.Finished goods (chocolates) are kept in a locked area of the warehouse. Access to finished goods is restricted to warehouse employees only, who carry their own security cards. A video surveillance system monitors the finished goods area. The audit team has verified that the security system is working and has been operational throughout the year. (Refer to Risk Factors 6 and 9 in Part (a) to assist in the assessment of inherent risk.)

image

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Auditing The Art and Science of Assurance Engagements

ISBN: 978-0134613116

14th Canadian edition

Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Joanne C. Jones

Question Posted: