Chan and Lam (CL) is a small CPA practice in Hong Kong. CL currently employs 20 audit staff and many of them are junior auditors. You are reviewing the work of three audit field staff with details as follows: Simon Lee, who has recently promoted to assistant manager, has worked on the audit of Cole Foods Limited for six years. Since the client never had audit adjustments in the prior audits, Simon concludes that the inherent risk of Cole Foods must be zero for the coming engagement. Amy Chan is responsible for the audit of AOP Electronics (AOP). The clients fiscal year ends on December. Amy had performed an exhaustive study and evaluation of internal control of this client on November 30. She concludes that the client has no control risks as she observed the presence of multiple layers of error checking process in AOP, and she considered that its not possible for the firm to have material errors given such detailed error checking process. Sam Wong is responsible for the audit of Plastim Manufacturing. Sam enjoys doing substantive audit work and has decided to use a substantive approach to this audit. Consequently, Sam has performed test of details on substantially all financial statement items and concludes that the risk of failing to detect material errors and irregularities is less than two percent. Sam has very little understanding about the client and the industry. To satisfy the requirement of the necessity to understand Page 2 of 4 internal control as required by the auditing standards, a limited review of Plastims internal control was conducted.

Required:

(a) Based on the information given, comment on the conclusion and workdone for the three audit field staff.

(b) Certain audit risks are significant in that they require special audit consideration. Give two examples of these significant risks that auditors should be aware of.