1. the audit firm of PWC evaluates the risk of material misstatement by disaggregating the total risk into its main components and sub components as indicated below

(a) inherent risk, (b) Control risk, (c) Detection risk (d) Operational risks, (e) finance risk and (f) compliance risk

required:

for each of the scenarios below, select the component of risk that is most directly illustrated. the component may be used once, more than once, or not at all. also suggest the effect on the financial statement and hoe the auditor might mitigate the risk (you may present your answer in the format below)

SCENARIO COMPONENT RISK EFFECT ON THE FINANCIAL STATEMENT HOW TO REDUCE THE RISK

A

B

C

D

E

F

A) A client fails to discover employee fraud on a timely bases because bank accounts are not reconciled monthly

B) The client's business manly deals with cash sales which is more susceptible to theft than credit sales

C) Confirmation of receivables by a new audit staff fails to detect a material misstatement

D) Disbursements (payouts) have occurred without proper approval

E) There is inadequate segregation of duties in the payroll section

F) The client is very close to violating debt covenants

G) XYZ Company, a client, lacks sufficient working capital to continue operations