Alpine Cupcakes, Inc. Risk Assessment Questions
I need the answers for these questions from the Alpine Cupcakes, Inc.: Risk Assessment Module
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1. Review Garcia and Fosters 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.
2. Evaluate other aspects of the Audit risk assessment memo (workpaper B.2.1). In particular, review the auditors 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