Identify and describe the matters that give rise to audit risks associated with

Parker.

Ans: -
The matters that give rise to audit risks associated with Parker are discussed below:

1. Internet trading

Parker could face issues as a result of his decision to grow his Internet business. Book
and CD sales tend to be linked because they are both types of entertainment and the
consumer is familiar with the product. Although selling toys and clothes may belong to
the same category, they are not. Garden furniture is heavy and would almost definitely
cost more to deliver, while clothing is sold more based on taste and can expect a high
degree of returns. As a result, specific risks associated with this decision are:

(a) The requirement to set up and maintain distribution processes for a large number
of new products.
(b) The risk of inventory obsolescence if Parker overstocks on items that become
backdated.
(c) Because of their lack of knowledge of Internet trading, management's overall
ability to operate the company may raise questions.

2. First year of audit

The audit is also risky for the audit company because it is the first year of an audit, and
the client has expectations for the type of audit report that will be made. The accounting
systems tend to be inefficient as well, increasing the possibility of material error again.
The audit firm must dedicate adequate time and money to the audit for the audit opinion
to be supported. The directors' pressure to finish the audit quickly will have to be
resisted.

3. Overtrading

Parker's revenue is increasing at a fast pace, but this rise is not being balanced by
increased net income. The company has been expanding its Internet presence, and it
expects to add more product lines to this division. There is a possibility that the
company's cash reserves will be depleted as it continues to grow but does not produce
enough extra cash to pay for it. Suppliers may go unpaid in this case, and the company
may be forced into liquidation. As a result, financial statements could fail to accurately
report doubts about the business's viability.

4. Control environment

The entire framework in which the control systems are supposed to work seems to be in
poor condition. There are errors in the systems, the extent of which is unknown, and the
directors and accountant do not appear to be motivated to try to fix the problem. The
accountant's abilities may also be called into question because he appears to have
been hired based on a personal relationship with the directors rather than on merit.
There could have been other errors that were not noticed. There's a chance that the
financial statements will contain significant errors.

5. Bank loan

The board of directors needs more money to grow the business. The bank is likely to
require a view of the audited financial statements to provide this financing; Parker's
directors expect the audit to be completed before meeting with the bank. The auditor will
need to write to the bank to express his or her disclaimer of reliance on the audit report
to obtain a bank loan. If the bank depends on the report and suffers financial damage,
the audit company runs the risk of being sued. Parker also faces the possibility of the
loan not being obtained and the company going bankrupt. The financial statements
would likely have to be prepared on a dissolution basis.