Auditing is a risky business. Many problems may arise during an audit. For questions 1. and 2. below discuss the primary risks involved in each scenario. Please be specific.

1. Sam and Dave are audit partners, and have decided to undertake the audit of ABC Corp. During some preliminary analytical procedures they determined that the cash account was low relative to the amount of sales. Sam proceeds to double check the bank reconciliations, but they seem to be correct. Dave reviews the Chart of Organization to see the responsibility level of those that examine the cancelled checks for proper signatures. However, Sam and Dave are still worried.

2. KPMX is a very large auditing firm. The Chairman of the Board of Endrun Corp., Tom Smith, wants to hire KPMX for its annual audit. However, Jane Green, the audit partner at KPMX knows that the turnover in the Accounting Department at Endrun Corp. is very high, and she also heard that the Endrun Corp. is poorly managed. Moreover, Endrun Corps. business is innovative and unique, and none of the auditors at KPMX have ever audited a company in that industry.