Audit Case Study

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Date Submitted: 11/10/2013 01:22 AM

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Assignment 1

Question 1: Case study (50 marks)

Read the case study ‘Comptronix Corporation: Identifying inherent risk and control risk factors’ on pages 17–22 and answer the following questions. You need to understand that some of the US accounting and auditing standards are different from the standards in Hong Kong as set out by the Hong Kong Institute of Certified Public Accountants (HKICPA). You should answer the following questions from the Hong Kong perspective. Required: a Professional auditing standards present the notion of audit risk, which is used to determine the nature, timing and extent of audit procedures. Describe the components of audit risk and discuss how changes in each component affect the auditor’s need for evidence. (8 marks) One of the components of audit risk is inherent risk. Describe typical factors that auditors evaluate when assessing inherent risk. With the benefit of hindsight, what inherent risk factors were present during the audits of the 1989 through 1992 Comptronix financial statements? (15 marks) Another component of audit risk is control risk. Describe the five components of internal control. What characteristics of Comptronix’s internal control increased control risk for the audits of the 1989–1992 year-end financial statements? (13 marks) The board of directors, and its audit committee, can be an effective corporate governance mechanism. Discuss the pros and cons of allowing inside directors to serve on the board. Describe typical responsibilities of audit committees. What strengths or weaknesses related to Comptronix’s board of directors and audit committee were present? (14 marks)

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ACT B866 Audit Theory and Practice

Question 2 (25 marks)

The following questions deal with the liabilities of auditors in Hong Kong: a Discuss the list of persons who may make a successful legal claim against auditors and state the basis that a court of law would use to assess the value of the...