Question 1 (15 marks) Answer all of the requirements for each of the following independent situations for your audit client: (1) All purchases must be approved by the audit client's Purchase Manager. (2) The audit client has just lost a major customer. This will result in a loss of 35% of the audit client's total revenue. (3) The audit client's management team often argues with the auditor about the auditor's suggestions to adjust accounting estimates. (4) The audit client recently implemented more computer controls to reduce the likelihood of incomplete accounting records. Required: (i) The three elements of the fraud triangle are: (A) incentives/pressures, (B) opportunities, and (C) attitudes/rationalisation. For each of the independent situations above, identify the most relevant element of the fraud triangle (e.g., write B if you think the answer is "opportunities) and indicate whether the situation results in higher or lower fraud risk (i.e., write higher or lower). No additional explanation is needed. If fraud risk is not affected, write N.A., i.e., not applicable. (4 marks) (ii) Analyse how each situation affects the components of the audit risk model and the amount of audit evidence required. E.g., whether there is an increase or decrease in inherent risk and briefly explain why. Marks are only given if correct explanations are provided. You do NOT need to explain why a situation does NOT affect a particular component of the model. (11 marks) Question 1 (15 marks) Answer all of the requirements for each of the following independent situations for your audit client: (1) All purchases must be approved by the audit client's Purchase Manager. (2) The audit client has just lost a major customer. This will result in a loss of 35% of the audit client's total revenue. (3) The audit client's management team often argues with the auditor about the auditor's suggestions to adjust accounting estimates. (4) The audit client recently implemented more computer controls to reduce the likelihood of incomplete accounting records. Required: (i) The three elements of the fraud triangle are: (A) incentives/pressures, (B) opportunities, and (C) attitudes/rationalisation. For each of the independent situations above, identify the most relevant element of the fraud triangle (e.g., write B if you think the answer is "opportunities) and indicate whether the situation results in higher or lower fraud risk (i.e., write higher or lower). No additional explanation is needed. If fraud risk is not affected, write N.A., i.e., not applicable. (4 marks) (ii) Analyse how each situation affects the components of the audit risk model and the amount of audit evidence required. E.g., whether there is an increase or decrease in inherent risk and briefly explain why. Marks are only given if correct explanations are provided. You do NOT need to explain why a situation does NOT affect a particular component of the model. (11 marks)
