Audit Risk and Response (2)

Question 1

Risk for revenue?

Answer 1

Increased risk of revenue expenditure being incorrectly classifed as capital, leading to misstatement of assets/expenses

Question 2

Example of risk for revenue?

Answer 2

Extensive refurbishment of non-current assets where judgement needed to establish whether work’s naqture is to enhance asset or repair/replace it

Question 3

Auditor’s response to revenue risk (breakdown)

Answer 3

Obtain breakdown of related costs and review accounting entries against invoices/details of work. Ensuring exoenditure treated as capital.revenue

Question 4

Auditor’s response to revenue risk (repairs)

Answer 4

Perform detailed review of repairs accounts for items which should be included in non-current assets

Question 5

Auditor’s response to revenue risk (asset register)

Answer 5

Review the asset register to ensure only capital oitems have been included

Question 6

Risk for income?

Answer 6

Increased risk of incomplete or unrecorded income due to fraud or theft

Question 7

Example of risk for income?

Answer 7

Large amounts of cash collected and held prior to banking

Question 8

Auditor’s response to income risk (analytical procedures)

Answer 8

Perform analytical procedures focusing on comparing revenue with expected seasonal/monthly patterns

Question 9

Auditor’s response to income risk (reconciliation)

Answer 9

If retail client, perform/reperform a reconciliation of a sample of till records to actual bankings