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Subject Topic: Question on control risk Post ReplyPost New Topic
  
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victoria1234
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Posted: 17 Apr 2011 at 19:40 | IP Logged Quote victoria1234

AICPA sample simulation feed back indicates that when competitive bids are not obtained by purchasing agent, control risk increases.

Can someone explain why?  To me competitive bid just ensures that company gets a better priced quality product....

I know definitions of inherent (risk that can not be eliminated), control (one that can be reduced by applying control procedures) and detection (risk that the auditor will not timely detect a material misstatement).  What is the best way to differfenciate between them?  Taking the test in a few days, trying to see if anyone has a better risk assesment technique for simulations...  Thanks.

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PINKCPA
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Posted: 18 Apr 2011 at 19:30 | IP Logged Quote PINKCPA

When competitive bids are not obtained, you run the risk that the purchasing agent may be looking out for their best interest (possible kick back from supplier), give the job to a friend, etc.

Competitive bidding ensures that controls are in place so that the company's best interest is considered. When that control is not in place..it increases control risk.

Hope that makes sense.



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victoria1234
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Posted: 18 Apr 2011 at 20:27 | IP Logged Quote victoria1234

Thank you, PinkCPA!!!  That makes perfect sense.  I guess this increases risk of management overlooking company policies and procedures, which will increases the risk that controls put in place will be overlooked - increases control risk.  Thank you so much.  Gives me a much better perspective.  :)

 

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eagles81
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Posted: 18 Apr 2011 at 23:35 | IP Logged Quote eagles81

now I have a question, If the management issued a statement
to promise a revenue growth within the current year and a
significant growth in the upcoming year, would that be
considered an effect on IR, DR or CR?, or no effect on
Audit risk at all since I think that could be categorized
as a fraud risk?

can someone help me with that one?
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kquinn2166
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Posted: 24 Apr 2011 at 13:48 | IP Logged Quote kquinn2166

The management has issued an aggressive growth in the future.  This would be a control risk since there is a tendency for management's attitude to override certain transaction.

Detection risk - auditor's failure to detect

Inherent risk - errors in calculation, invoice missing

Control risk - internal control weaknesses that can't be prevented or detected on a timely basis

Audit risk - overal should be the same, if one risk increases another risk decreases to remain the same overall risk



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