Question 2

In lectures and tutorials you were introduced to inherent risks and how they impact on the planning of an audit. You were told that there are difference "levels" of inherent risk analysis starting with a general inherent risk analysis which identifies a series of general inherent risks which may exist in an entity which could cause material misstatement. These general risks can be found on page 239 of the textbook. There are nine listed on page 239. I want you to focus on 3 of these factors for this assignment (these are the only three inherent risks you can look at for this assignment - you cannot look at any of the others which are listed on page 239 of the textbook):

• complex or non-routine transactions
• judgement required to correctly record account balances and transactions
• related parties

The next "level" of inherent risk assessment is to identify whether there are specific examples of these risk factors that are applicable to an entity that is being audited. It is this level of assessment that I want you to focus on. I want you to look for specific examples of inherent risks that illustrate the general inherent risks listed on page 239 of the textbook. These examples are, what you believe can create the possibility of material misstatement. Note I have underlined the word material. This is because you need to find specific examples of inherent risks that, might result in material misstatement. As the auditor you would be focusing on things that could be wrong which are considered material - this can mean material by amount or material by nature and you would be looking for the possibility that the numbers are wrong, or the disclosure is wrong. For the assignment, I am going to get you to look at disclosure only (so don't worry about the numbers).

YOU WILL NEED TO FIND AT LEAST ONE EXAMPLE OF EACH OF THE GENERAL INHERENT RISKS LISTED ON PAGE 5. The remaining three inherent risks you identify can be an example of any of the three general inherent risk factors from page 5. In other words, you can have up to four examples for one of the three inherent risk factors but you must have at least one example for each general inherent risk. We are using Virgin for this assignment because you have already done considerable research into the entity for Part A so you already have the annual reports and you already have identified some key events that have occurred during the report period ending 30/6/19.

one of the inherent risks you have to examine is examples specific to Virgin Australia that represent complex or non-routine transactions. How do you find example(s) of this? You can use one of two ways to identify appropriate inherent risks. Firstly, you can look for an event which occurred during the reporting period which is an example of a nonroutine transaction. Or you can look at the annual reports and, using your assumed accounting knowledge, look for accounts in the financial statements (or notes) that represent examples of complex or non-routine transactions. Remember the inherent risks you identify must be material either by nature or amount.

If you are not sure, non-routine transactions are events that do not occur on a day to day basis and hence stand out as having a potential to be misstated in the reports because the accountants for an entity are not normally exposed to these transactions on a daily basis to gain experience in how to record them. Once you have found a specific example of a complex or non-routine transaction, you then have to identify what the potential incorrect disclosure could be. In the next section I will tell you how I want you to present your answer. The inherent risk factors you identify must come from events that have occurred in the period 1/7/18 - 30/6/19 or are accounts recongised and disclosed in the annual report for the period ending 30/6/19. You can not go 7 outside of this period.