Risk Assessment in Auditing of Seven

This assignment delves into the auditing process of Seven's annual reports, focusing on various inherent risks such as fraud, misappropriation of assets, and misclassification of balances. It examines the company's risk management strategies, control environment, and assessment of going concern risk. The analysis aims to evaluate the effectiveness of Seven's internal controls in mitigating these potential threats.

Running head: AUDITING AND ASSURANCE IN AUSTRALIA
Auditing and Assurance in Australia
Student’s Name:
University Name:
Author Note

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Table of Contents
Introduction................................................................................................................................2
Inherent Risk Assessment..........................................................................................................2
Risk of Fraud..........................................................................................................................2
Going Concern Risk...............................................................................................................3
Risk Factor arising from Related Parties...............................................................................4
Six Inherent Risks faced by Seven.........................................................................................4
Control Risk...............................................................................................................................4
References..................................................................................................................................6

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Introduction
In this study, the auditing of the Seven’s annual reports has been done in order to
understand the different standards of risk associated with the different accounts. In more clear
terms the inherent assessment of risk is conducted in accordance to the data provided in the
annual report. The inherent risk assessment is also executed in order to provide a clear picture
of the financial condition of the entity as well as the liquidity position of the organization.
The reason for conducting such an audit is that the loophole of the management policies and
other procedures will be highlighted after conducting such an audit.
Inherent Risk Assessment
An inherent risk assessment is done periodically in order to recognize the potential
areas of risk that is areas where fraud could occur and the ways to mitigate them. An inherent
risk assessment consists of three key steps. Firstly the measure of fraud involved in the
system of work or the locations of weakness that could be exploited by committing
infringement is judged. Secondly the ways in which a particular employee or member of the
organization may commit the fraud, that is the various methods in which the fraud might be
committed and thirdly the ways in which the fraudulent tasks committed can be covered up or
concealed.
Risk of Fraud
The risk of fraud is a major risk and takes up a large part of the auditing procedure.
Identifying the exact areas where a particular employee can cover up his fraudulent activities
and assessing the mindset of that particular employee so as to understand how and why he or
she committed such an unethical task really requires sincere effort on the part of the auditor.
There are a number of identified areas of risk in the annual report of Seven. These are the

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revenue recognition funds that imply errors in the highest extent in terms of recording
receipts. For an instance a source of revenue may be recognized in some other financial year
that is incorrect, therefore increasing or decreasing the net revenue as the case may be. Thus
the accounts that are vulnerable to risk of fraud are the accounts receivable and accounts
payable. Another area where the fraud risk can be committed is the area related to
misclassification of balances which is more or less similar with the issue related to revenue
recognition. A person trying to conceal a certain amount in order to increase or decrease the
total earned revenue of the firm then he or she may tamper the balance of a particular
account. This is known as misclassification of balances. The last area vulnerable to risk of
fraud is the area related to misappropriation of assets. Under this category the defaulter may
tamper with the balances of the assets and liabilities or may create an entire new asset or
liability just to adjust the amount of fraud that has been stolen.
Going Concern Risk
The going concern risk is associated with the risk that is implemented while
ensuring that the particular entity is a going concern. The management of the company has a
huge role in such a condition. This is because the management has to conduct the going
concern risk assessment procedure in order to make sure that the entity does not fall out from
satisfying any of the conditions that ensure its type as a going concern. When a particular
firm is established as a going concern then it is assumed that the particular firm will be in
business for the near future without any planning of wrapping up and will be able to
discharge the liabilities and recognize the assets and obtain refinancing as and when
necessary.
As it can be observed from the annual reports of Seven, it more or less does satisfy the
conditions of remaining a going concern. There has been no such disparity in the net profit
earned by the company in the last few years. Thus it is evident from the observations that the

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management of Seven has taken enough care and has conducted going concern risk
assessment from time to time in order to maintain its reputation as a going concern.
Risk Factor arising from Related Parties
Risk arising from related parties refers to the transactions that take place between two
parties who are not independent of each other and that is the reason why the risk associated
with such transactions is relatively higher. Therefore there should be addition of new
disclosures and rules controlling the nature of those transactions. In case of Seven the
existence of risk associated with related parties is there and should be dealt with utmost care.
This is because if a sincere effort is not taken while handling these, then there may be a
chance of material misstatement in the accounts.
Six Inherent Risks faced by Seven
The six inherent risks faced by Seven are namely as the risk of fraud, risk of misappropriation
of assets, risk of misclassification of account balances, risk of material misstatement, risk
associated with the loss of money, high balance of a particular account also involves inherent
risk and the risk associated with short term liabilities.
In other words inherent risk faced by Seven is optimum and with proper guidance
from the internal auditor and with proper vigilance on the part of the management regarding
these issues, the company is sure to prosper and excel.
Control Risk
Control risk refers to the risk that occurs after proper implementation of measures in
the organization in order to minimize those particular risks.
The factors that lead to implementation of internal control in case of Seven is the
environment of the firm that is the ambience in which the employees are working. Secondly

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the effectiveness of the control procedures also affect the implementation. The monitoring of
the management should be truly effective and done to the fullest effort in order to implement
an effective measure of internal control. The implementation of internal control is so
important both in case of Seven and also in general because it helps an auditor to ensure what
are the tests that have to be performed and also helps in understanding the integrity of the
management. Thus internal control not only aids in controlling the internal issues of the firm
but also checks and evaluates other key factors of the entity.
Therefore the internal control measure as observed in the Annual Report of the Seven
has been done effectively and the company has a firm internal control. The management of
the firm seems very serious and takes up a true effort in order to exclude all types of internal
risks.

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References
Auditing and assurance services in Australia 6e Revised (Grant Gay Roger Simnet) chapter
6(page:251-277)
http://www.sevenwestmedia.com.au/investors/annual-reports