With reference to Figure 3.5 of the textbook on sample of working paper, provide the six risks of material misstatement for Rio Tinto Limited assuming that the company is a prospective new audit client. The supporting rationales of each potential risk of material misstatement are required for marks

FIGURE 3.5 Crest Outfitters - Working paper A-002 Work paper ref: A-002 Prepared by: RJ Date prepared: 16/04/2020 Crest Outfitters Pty Ltd Audit for the year ending 30 June 2020 Preliminary assessment of risks of material misstatement OBJECTIVES 1. Understand the audit client. 2. Identify potential risks of material misstatement 3. Rank the assertion level risks based on their likelihood of occurrence and potential impact on the chart provided. This will help the audit team identify the significant risks out of all of the risks of material misstatement. 4. Create a final list of the 5 risks that will have the most significant risk on audit planning. CLIENT BACKGROUND INFORMATION The entity and its environment Organisational structure, ownership and governance: Who owns the entity? Does the entity have a board of directors? Are any directors independent? If so, how many? How does the entity use it in their business? What is the volume and type of transactions? What is the business model for the entity? Where do they receive their funding from? Loans? Shares? Other? Industry, regulatory and other factors: What government regulation must be followed by the entity? What industry is the client in? Are there any global standards for this industry? What is the current condition of the economy? What will the impact of this be on the entity? Is the entity affected by activities in other countries, foreign currencies or other global forces? What is the level of competition in the industry? . Are customers likely to purchase from the entity often? How frequently? Are sales likely to be cyclical or seasonal? Dependent on trends? Are these items an essential purchase or a luxury item bought with discretionary income? What is the likelihood of fraud or theft? Measures to assess financial performance: How are staff remunerated at the entity? What financial performance information is made publicly available? How has the entity performed against others in the industry? Are accounting staff qualified and well trained? The applicable financial reporting framework What accounting standards should be followed? Is the company listed on a public stock exchange? If yes, in more than one jurisdiction? Obtaining an understanding of the entity's system of internal control What IT systems are used to support the entity's business? Does the entity have documented business processes and procedures? RISKS OF MATERIAL MISSTATEMENT List the risks you have identified (note that you may have more than 6). 1. 2. 5. 3. 6. RISK MATRIX For each risk, place it on the matrix based on your assessment of its likelihood of occurrence and the potential dollar size of the misstatement if the risk occurred. Likelihood of risk occurring Potential misstatement if risk occurs FINAL LIST OF RISKS Select your top 5 risks (from the top right quadrant of your chart) and list them. 1. 2. 5. 3