Page 53 - Microsoft Word - 00 IWB ACCA F7.docx

Risk

Exam focus

A typical exam question will ask for audit risks and responses of the auditor to
address those risks.

A common mistake that students make in exams is to explain business risks rather
than audit risks. Business risks are not examinable in this syllabus. Take care to
ensure your answer is relevant to the requirement.

Factor Audit risk NOT Audit risk

Customers are Receivables may be overstated if Bad debts may arise
struggling to pay reducing the profits of
debts bad debts are not written off the company

Inventory may have to
Inventory may be overstated if the
The client operates in inventory is obsolete and NRV is be written off reducing
a fast paced industry the profits of the
lower than cost
company

Another common mistake is to suggest a response that is not directly relevant to the
risk given.

Audit risk Relevant response Irrelevant response

Overstatement of Obtain external
receivables due to Inspect after date cash receipts confirmation from
bad debts not written from customers customers
off

Overstatement of Obtain the aged inventory listing The company should
inventory due to and review for old items. Discuss discount the inventory
obsolete items not with management the need for in order to sell it
written off these items to be written down.

Illustrations and further practice

Now try TYU question 1 from Chapter 4

49