Identified risk factors The audit staff have recently completed risk assessment procedures to gain an understanding of CCC’s business and to identify risk factors relevant to the risk of material misstatement: 1. Due to the size of CCC’s business, only one accounting clerk does most of the accounting. 2. In recent years there has been increased competition in the artisanal small batch cheese business. 3. The management bonuses at CCC are based on net income. 4. All cheques require the signature of both owners. 5. Access to the warehouse at CCC is restricted to warehouse employees only, who carry their own security cards. 6. The cheese inventory has a one-year shelf life. 7. Martyn Davis has developed a personal trusted relationship with each of the dairy farmers in the UK. He visits each farmer annually. He believes these strong relationships help to ensure farmers send CCC high quality dairy products. The product quality of the dairy inputs is critical to the production of high-quality cheese. 8. CCC just switched to an inventory tracking system that was developed by the owner’s son as part of a computer programming course. The project received an A grade. 9. CCC customers include major retailers such as Target, Marshalls and high-end grocery stores. One month before Christmas, a major selling time – representing approximately 30 percent of sales – CCC’s custom made cheese press broke down. It took two weeks to obtain the necessary part to repair the machine. Orders where shipped to major retailors more than two weeks late and several are refusing to pay for the order, claiming the delayed delivery resulted in a significant quantity of unsold cheese. Required|; For each risk factor identified, decide whether each piece of information would affect inherent risk or control risk and whether it would increase or decrease the specified risk
Identified risk factors
The audit staff have recently completed risk assessment procedures to gain an understanding of CCC’s business and to identify risk factors relevant to the risk of material misstatement:
1. Due to the size of CCC’s business, only one accounting clerk does most of the accounting.
2. In recent years there has been increased competition in the artisanal small batch cheese business.
3. The management bonuses at CCC are based on net income.
4. All cheques require the signature of both owners.
5. Access to the warehouse at CCC is restricted to warehouse employees only, who carry their own security cards.
6. The cheese inventory has a one-year shelf life.
7. Martyn Davis has developed a personal trusted relationship with each of the dairy farmers in the UK. He visits each farmer annually. He believes these strong relationships help to ensure farmers send CCC high quality dairy products. The product quality of the dairy inputs is critical to the production of high-quality cheese.
8. CCC just switched to an inventory tracking system that was developed by the owner’s son as part of a computer programming course. The project received an A grade.
9. CCC customers include major retailers such as Target, Marshalls and high-end grocery stores. One month before Christmas, a major selling time – representing approximately 30 percent of sales – CCC’s custom made cheese press broke down. It took two weeks to obtain the necessary part to repair the machine. Orders where shipped to major retailors more than two weeks late and several are refusing to pay for the order, claiming the delayed delivery resulted in a significant quantity of unsold cheese.
Required|;
For each risk factor identified, decide whether each piece of information would affect inherent risk or control risk and whether it would increase or decrease the specified risk
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