You are planning an audit and through your understanding of the clients business and industry and control assessment, you determine the following:

• The industry is highly regulated
• The companys organizational structure is not complex, but there are related parties that transact business with the company
• There is a concentration of risk where 3 customers account for 87% of gross sales
• There is a large volume of transactions, but the transactions are not overly complicated and do not often require judgment
• The company has adequate separation of duties and an internal audit department that performs periodic, random testing throughout the year
• The company has primarily automated transactions and the personnel in the accounting department is adequately qualified and trained for their positions
• Walkthroughs indicated controls appear effective

1. Given the information above, prepare the audit risk formul Explain your rationale for your assessment of inherent risk, control risk, and detection risk.
2. Based on your assessment, would you decide to test controls? If so, why and how would that effect your substantive testing? If not, why?