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Hi tutor,
I am confused by the answer given in one of the questions in Kaplan revision kit. Hoping you could help me on this:
Question 145, Kaplan revision kit, Sunflower CO:
“The opening balances of each supermarkets were transferred into head office’s accounting records. The increased workload at head office has led to some changes in the finance department and in November 2012 the financial controller left. His replacement will start in late December.”
The audit risk relating to the above situation given was:
“There has been an increased workload for the finance department, the financial controller has left and his replacement will only start in late December.
This increases the inherent risk within Sunflower as errors may have been made within the accounting records by the overworked finance team members. The new financial controller may not be sufficiently experienced to produce the financial statements and resolve any audit issues.”Shouldn’t the lack of financial controller, in addition to the overworked finance team, lead to an increase in control risk, and not inherent risk?
I think overworked finance team is definitely inherent because tired people under time pressure are likely to make errors.
Similarly, because the controller left more junior people in the finance department will have to carry out tasks previously done by a more experienced. Again, this increases the chance of errors being made.
However, I think you make a good point about control risk also increasing because the controller is not there to supervise and monitor the operation of the control system. The absence of a controller therefore increases both inherent risks and control risks.
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