Question 1
(a) Simon Lee As the client didn’t do any adjustment before, the conclusion of there is inherent risk is not valid. Inherent risk is the susceptibility of an assertion to material misstatement, assuming no related internal control.
For Simon Lee, the auditor of Cole Foods Limited, he should appraise the business environment of his client. Since there will be change of business environment, inherent risk may appear. Besides, he should figure out the business process which the client is applying now. He needs to know the engagement in the future because there will be some change in the business process.
Amy Chan
According to Amy, she make a conclusion that the AOP Electronics has no control risks.
Since internal control cannot…show more content… An auditor is required to understand the major types of activities that the entity uses to monitor internal control over financial reporting, and correct the problems when the entity is applying the internal control. Therefore, the auditor should understand the five components of internal control in order to plan the audit. This knowledge is used to identify types of potential misstatements, consider factors that affect the risk of material misstatement, design tests of control and design substantive procedures.
(c) This view is correct. An auditor should conduct substantive test procedures if the auditor has give a statement that the internal controls exists. this substantive test procedure can help to check if material misstatement is existing because of fraud or error.
(d) This statement is incorrect. The bank statement or suppliers’ statements are provided by external party while bank reconciliations or depreciation schedules are prepared by the client. This shows that the evidence are provided separately by external and internal party. Since evidence of internal party are less reliable than those from external party, the statement that “both evidence have equally reliable” are wrong.
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