80 Hurling Co

a) Audit risk is the risk that the auditor express an inappropriate audit opinion when the FS are
materially misstated.
- Inherent risk: is the susceptibility of the assertions about class of transactions, accounting
balance or disclosure to misstatement which could be material, either individually or when
aggregated with other misstatements, before consideration of any related controls.
- Control risk: is the risk that a misstatement in an assertion about class of transactions,
accounting balance or disclosure which could be material, either individually or when
aggregated with other misstatement will not be prevented, detected and corrected, on a timely
basis by entity’s internal control.
- Detection risk: is the risk that procedures perform by the auditor to reduce to an acceptably low
level will not detect a misstatement which exists and which could be material, either individually
or when aggregated with other misstatements.
b) Audit risks:

Audit risks Response

The website was upgraded during the year at
a cost of 1.1m.
To recognize this cost in an intangible asset, it
must meet the criteria in IAS 38 Intangible
assets. If not, it will be increased the risk that
intangible assets are overvalued.
The finance director has increased the useful Discuss with the directors the rationale for
lives of fixtures and fittings from 3 year to 4 any extension of asset lives and reduction of
years, resulting in the depreciation charge depreciation rates. Also, the 4-year life
reducing. Under IAS 16 PPE, useful lives are should be compared to how often these
to be reviewed annually, and if asset lives assets are replaced, to assess the useful life
have genuinely increased, then this change is of assets.
reasonable.
However, there is a risk that this reduction
has occurred in order to boost profits. If this
is the case, then fixtures and fittings are
overvalued and profit overstated.

`One of its wholesale customers have been

experiencing difficulties with repaying 1.2m
owing to Hurling Co.
There is a risk that customer is unable to pay
for this debt, lead to an irrecoverable debt.
Hurling Co introduced a new bonus to its
sales staff which will increase the sale cut-off.

c) Identify and explain 5 ethical threats:

 Ethical threat Safeguard
Advocacy threat.
Familiarity threat. Assign other audit engagement partner
Self-interest threat.