Case study (50 points) You have been appointed as auditor of the company XYZ after the non-renewal of the previous auditor. XYZ is a newly created insurance company. The insurance sector has been experiencing stagnation and new regulatory constraints in recent years. XYZ is a listed public company. In 2017, the results improved, although they are again in deficit. The loss on 31/12/2107 is 55 000, it was 880 000 in 2016. The cash situation remains worrying. There is a system of physical inventory at the end of the year. All purchase transactions with an amount higher than 300 must be approved by the financal direction. Mr. LENON was the accountant of XYZ, while being a member of its board of directors. He resigned from his position as accountant in 2017 for health reasons. Since then, some accounting documents have disappeared. The new accountant is experienced and he comes from a big4. On the other hand, Mr. FENIKOS is the director of ABC, the firm who rents the premises to XYZ. A cash advance of 400 000 has been made to ABC this year. You noted the following items during your first visit: Turnover: 14 800 000 Provision for doubtful debts: 100 00 in 2015; 200 000 in 2016; 500 000 in 2017 Question: 1/ Complete the table below to identify inherent and control risk associated to the auditee (you have to identify at least 7 clements of concern) Risk Inherent or Control ? Why it's a risk Consequences on the audit process 1/ 22 Case study (50 points) You have been appointed as auditor of the company XYZ after the non-renewal of the previous auditor. XYZ is a newly created insurance company. The insurance sector has been experiencing stagnation and new regulatory constraints in recent years. XYZ is a listed public company. In 2017, the results improved, although they are again in deficit. The loss on 31/12/2107 is 55 000, it was 880 000 in 2016. The cash situation remains worrying. There is a system of physical inventory at the end of the year. All purchase transactions with an amount higher than 300 must be approved by the financal direction. Mr. LENON was the accountant of XYZ, while being a member of its board of directors. He resigned from his position as accountant in 2017 for health reasons. Since then, some accounting documents have disappeared. The new accountant is experienced and he comes from a big4. On the other hand, Mr. FENIKOS is the director of ABC, the firm who rents the premises to XYZ. A cash advance of 400 000 has been made to ABC this year. You noted the following items during your first visit: Turnover: 14 800 000 Provision for doubtful debts: 100 00 in 2015; 200 000 in 2016; 500 000 in 2017 Question: 1/ Complete the table below to identify inherent and control risk associated to the auditee (you have to identify at least 7 clements of concern) Risk Inherent or Control ? Why it's a risk Consequences on the audit process 1/ 22