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Tutorial Qs

The document contains tutorial questions focused on audit risk, including its components, strategies for risk reduction, and specific business risks related to two companies, Boxer Corp and High Violet Limited. It asks for identification and explanation of audit risks and material misstatements based on provided scenarios. The questions aim to assess understanding of audit processes and risk management in financial statements.

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8 views1 page

Tutorial Qs

The document contains tutorial questions focused on audit risk, including its components, strategies for risk reduction, and specific business risks related to two companies, Boxer Corp and High Violet Limited. It asks for identification and explanation of audit risks and material misstatements based on provided scenarios. The questions aim to assess understanding of audit processes and risk management in financial statements.

Uploaded by

Presana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Tutorial Questions

Question 1:
Audit risk is the risk that the auditors give the wrong opinion i.e. they say the accounts are true and
fair and they aren’t. Name the three types of risk that make up audit risk, with a brief description
of each. Which of these elements do the auditor have some control over?

Question 2:
Discuss in general how the auditor might try to reduce the level of risk on an audit?

Question 3:
You are the auditor of Boxer Corp, as part of the planning process you have had a meeting with the
Finance Director, who has told you the following bits of information, which you think are important
for the audit.

Legal case: In the year one of the employees of Boxer was injured as they had been told by their
boss not to follow proper health and safety procedures in order to save time.

Overdraft: Boxer is at the limit of their overdraft and are applying to their bank in order to increase
the limit.

1. Identify and explain the business risks in the above scenario


2. Explain which of these will be a risk on the audit

Question 4:
Your audit firm Berninger LLP has a new client, High Violet limited. High Violet manufacture
bespoke fluorescent lighting for industrial and commercial clients. You have found out the
following information in your discussions with the client.

High Violet’s projects can take weeks and they require a 50% deposit from the requirement at the
start of the job, with the final balance being paid once the lighting has been delivered. At the year
end one of High Violet’s major customers went into liquidation, they owed them a large sum of
money for some recent work. The liquidators are not optimistic that this will be paid.

Due to the chemicals used in the manufacture of the lights, High Violet has to comply with a
significant amount of legislation and are inspected on an annual basis. It also means that any
products damaged during the manufacture process need to be disposed of as they cannot be
repaired or resold. There is also an additional cost to this disposal as a specialist company needs
to be used.

The company has been expanding and recently opened an additional factory which was financed
by a 10 year loan from the bank.

From the above information, assess the risks of material misstatement arising in the
financial statements.

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