if you had been the auditor of wesfarmers and autodom in australia for the year ending 2012,...

Question

if you had been the auditor of wesfarmers and autodom in australia for the year ending 2012, identify atleast three inherent risks that you would have considered for each company in the audit planning phase.

David · Accepted Answer

Following are the components of audit risk model:- 
1. Inherent Risk. 
2. Control Risk. 
3. Detection Risk.  
INHERENT RISK:- 
Inherent risk is the risk of material misstatement that can occur in Financial Statement 
assuming that there were no related internal controls. The inherent risk of misstatement is 
greater for some types of transactions or accounts than for others 
1. Account balances and transactions subject to complex calculations are more 
vulnerable to this type of risk. 
2. Assets such as cash are more vulnerable to theft than other assets. 
3. Account balances subject to estimation and judgment such as provisions for 
accounts receivable. 
CONTROL RISK:- 
Control risk is that risk that could not be prevented or Timely Detected by the 
accounting or Internal Control System. Control risk will vary inversely with the level of 
effectiveness of the internal control structure. However, because of the inherent limitations of 
any internal control structure (e.g. those due to human error), there will always be some level of 
control risk within internal control structure. 
DETECTION RISK:

if you had been the auditor of wesfarmers and autodom in australia for the year ending 2012, identify atleast three inherent risks that you would have considered for each company in the audit planning...

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