Blue Cow is a long-established soft drink organisation, manufacturing a popular product for major

supermarket chains. The audit of the company has been straightforward in the past, and the company

has reliable suppliers and loyal customers. In addition, the directors and senior management are highly respected for their abilities and the strong ethical culture they inspire, as well as the excellent internal controls they demand.

The company only sells one product - a 300ml can, which has historically been priced at a 331/3 % markup on cost, yielding a gross profit percentage (GP%) of 25%. In the past any variations on the GP% have never been outside the range of 24% to 26%.

a) Identify the three components of audit risk and explain what your assessment of risk is for each

component, based on the above information