Four tasks are required to assess the risk of misstatement. They are (1) identify risk by developing an understanding of the entity and its environment, (2) relate the risk to what could go wrong in management’s assertion, (3) determine whether risks could result in material misstatement of the financial statements, (4) consider that risks will result in material misstatement.

Required:

Using these tasks, analyse the following risks:

A. Cash receipts from sales in an office supply store are not recorded.

B. Investment in securities by the treasury department of a small manufacturing firm results in large losses.

C. Financial statement disclosures do not comply with IASs.

D. Pollution equipment in a large international steel refinery does not comply with local pollution control laws.

E. Bank statements do not correlate with cash receipts and disbursements.