Alpine Cupcakes, Inc. Risk Assessment Questions

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I need the answers for these questions from the Alpine Cupcakes, Inc.: Risk Assessment Module

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1. Review Garcia and Foster’s calculations of materiality thresholds for the 20×2 Audit (workpaper B2.1) Determine if the auditors correctly applied the materiality concept in their risk assessment procedures. Describe any problems you find and provide suggestions for improvement.


The materiality concept mainly implies that during accounting or even auditing, only the
important matter ought to be considered. Those that are small and trivial and are not likely to
have any effect should be ignored to ensure that there are not too many complications in the
accounting process for the business.
During the audit, the materiality concept seems to have been totally put into account. The
very small differences in the totals on the financial statements, which caused a slight imbalance
in the totals were ignored and assumed to have been as a result of small errors such as
miscellaneous omissions. The fact that they put materiality into use is the fact that initially, they
came up with a thresh hold with which they compared the different amounts to. Having exceeded
the thresh hold meant that the amount was material enough to be recorded in the financial
statements and considered in the final judgment of the audit. However, being less than the thresh
hold caused some totals to be disregarded (Kwok, 2005).
Kwok, B. K. B. (2005). Accounting irregularities in financial statements: A definitive guide for
litigators, auditors, and fraud investigators. Aldershot, Hants, England: Ashgate

2. Evaluate other aspects of the Audit risk assessment memo (workpaper B.2.1). In particular, review the auditor’s application of the audit risk model and brainstorming processes. Describe any problems you find and provide suggestions for improvement. Identify and document any additional problems you discover with the memo. This question relates to Step 3 of the Garcia and Foster Audit Plan.

Answer; There was a problem of identifying the specific cause of the fraud in the organization. I suggest that since fraud is hard to discover and are covered up by people who execute them, auditors ought to endeavor to recognize risk factors that are related with the event of fraud. These fraud risk components are ordinarily
sorted along three measurements of the fraud triangle: opportunities, incentive and rationalization.
Incentives are available when workers feel pressure to submit misrepresentation. Pressure from
individual budgetary commitments or assumptions with respect to the substance’s benefit may all make incentives for workers to commit fraud. Opportunities emerge when conditions inside a substance are with the end goal that a worker can commit fraud. A few workers rationalize participating in deceitful conduct since they have states of mind or character characteristics which permit them to commit an untrustworthy demonstration. Auditors should incorporate their comprehension of the fraud risk factors with other data to set up their fraud risk assessments.

The auditors have done the detection risk, the inherent risk and the control risk but did not tell us about the audit risk. I suggest that the auditors should use the audit risk model to identify the audit risk using the following formula;

Audit Risk = Inherent Risk × Control Risk × Detection Risk

3. Prepare a memo to document your understanding of Alpine Cupcakes, Inc.’s environment and provide your assessment of Garcia and Foster’s audit risk. Describe the specific risks for Alpine Cupcakes, Inc., explain why you believe these factors relate to the Alpine Cupcakes audit, and identify which specific accounts are likely to be affected by these risks. Describe how the audit teams should address the risk identified. For example, the background information mentions that sugar prices may rise. What risks would this present to Alpine Cupcakes? Which accounts would be affected by this risk? How would the audit team address these risks in the audit plan?

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