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Hi
Sir i am doing questions from BPP revisoion kit?
I hava a doubt in question 76-Smoothbrush comapny,
Questions says to identify and explain audit risk
1) in audit risk i have identified that smoothbrush is selling to one big customer which has share of 60% in the sales.
2)During the count of inventory there will continue to be inventory movements with goods arriving and leaving the warehouse
3)The team prints the inventory quantities and descriptions from the system and these records are then compared to the inventory physically present.i have identified these audit risk but in answer its not mentioned anywhere. So can it be a audit risk?
Thanks in advance
I do not have this question of answer to hand but I know you have the exam on Monday, so I will do my best to reply based on the information in your post alone.
As you know – most audit risk will be a risk of material misstatements (ROMM) which arises due to IR or CR.
1) Is a good example of a business risk – it is something that threatens the company’s operations – and business risk is NOT audit risk. As stated by you it is just a “fact of doing business” – what is the ROMM? The ROMM in revenue hasn’t changed just because it will be less.
2) I would expect this to be included in the answer but it has to be expressed in terms of ROMM at the assertion level that goes beyond the facts in the Q. For example, “There is a risk of material misstatement in the inventory valuation due to cut-off errors if movements during the count are not properly accounted for”. This is one of the few instances in which we can say misstatement rather than, understatement or overstatement – because the error could be either.
3) I don’t see anything to construe in this as an audit risk.
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