Auditing Assignment: Inherent Risk

AUDITING

TABLE OF CONTENTS
Inherent Risk...............................................................................................................................1
Audit Evidence Mix....................................................................................................................4
REFERENCES................................................................................................................................7

Inherent Risk
A risk constituted by an omission or error in the financial statements of the company
occurred due to any factor except the factor of control failure is an inherent risk to any
organisation (Institute of Chartered Accountants in Australia, Accounting Handbook 2017). In
reference to the financial audit, inherent risk mainly occurs due following two factors:
 If the transactions are of complex nature
 Where, high degree of judgement is required regarding the financial statement.
Following are the inherent risks identified in CommBank:
Threshold cash transactions limit of $10000: Under this Australian banks are subjected to the
policies of national regulator AUSTRAC, which states that the cash amount over $10000, need
to be reported (CBA, Money laundering scandal: how it happened, 2017).
 This policy lead to the cuckoo smurfing laundering technique. Through this technique
two men namely Arlsan Shaffi and Salman Khan were found alleged to launder
$1784408 by making deposits into 101 Commbank accounts. This lead to the increase in
deposits of Comm Bank in 2012.
 Because of the above scenarios, Comm bank was accused of breaching various money
laundering laws by AUSTRAC.
 AUSTRAC has also taken the action against the bank in which bank could be fined
millions of dollars. Due to this action, shares of the bank has also declined.
 This could have been identified earlier if auditor had focused on sudden increase in
deposits of comm bank and had tried to find out the reasons behind the same.
Due to this scandal once deposits of the bank increased that portrayed sound financial
performance but after the detection of the fraud, Comm Bank faced a huge financial as well as
reputation loss.
1