Auditing Essay Example | Topics and Well Written Essays - 2000 words - 4

Auditing - Essay Example Audit risk refers to anything that will prevent ABC Chartered Accountants from giving a correct and an appropriate audit report about Zebra. Inherent risk involves the risk that the operations of Zebra within the period had issues that could lead to material misstatements or errors (Collier and Agyei-Ampomah, 2010). This will include the risks that staff members and managers in Zebra can conduct certain fraudulent or wrong activities in course of the operation of the company. The obvious inherent risk involves the pressures and changes that occurred in the period. The obvious increase in the credit period which gives external entities access to funds meant for Zebra and this causes an extended lock up of capital which could lead to the significant defaults and losses to the company. There is also the risk of staff members overstating their earnings and their sales in order to gain the commissions that have been offered. Finally, the pressure to join the Australian Stock Market provides the risk for Zebra staff members to overstate the asset position in order to attain a favourable view before various investors and the Au stralian public. Control risks involve the possibility that the controls put in place by Zebras management and directors will be overridden in a way that could lead to fraud or errors in the financial statements (Pickett, 2010). This involve the risks of the EFTOS system being abused by some parties in the company to lead to fraud and error. Secondly, the risk of people overstating their sales and indulging in unethical practices plays a significant role in overriding the systems. Additionally, the management of Zebra could override the systems if they all indulge in groupthink and they all second the need to get listed to expand the firm. This could lead to major problems and issues that can involve the complete disregard for internal controls. Detection risks is the possibility of ABCs