Examine the inherent risk, impact of controls, and residual risk plots in Figure 12-8 for the supply chain and production management process. Based on this plot, what conclusions should an auditor reach for each of the risks regarding whether to test controls and the extent to which substantive testing should be performed?

Figure 12-8

Transcribed Image Text:

Magnitude of Risk Outcome Low High Poor quality materials Material shortages Low Excess spoilage Poor production scheduling Unrecorded liabilities Processing errors Likelihood of Risk High