Risk Assessment and Audit Strategy for Mung Ltd.

Running head: RISK ASSESSMENT AND AUDIT STRATEGY
Risk Assessment and Audit Strategy
Name of the Student
Name of the University
Author’s note

RISK ASSESSMENT AND AUDIT STRATEGY1
Table of Contents
Introduction................................................................................................................................1
Discussion..................................................................................................................................1
Part - A.......................................................................................................................................1
Inherent risk of the audit client and degree of the risk...............................................................1
Control risk of management assertion of occurrence of the sales revenue account...................2
Identification of existing internal control...................................................................................3
Degree of the risks.....................................................................................................................3
Analytical procedures for assessing the likelihood of misstatements for occurrence of sales
revenue.......................................................................................................................................3
Explanation of the ratios............................................................................................................4
Part-B.........................................................................................................................................4
Type of audit strategy to be followed in Mung Ltd...................................................................4
Relevance of the method to the audit tests.................................................................................5
An existing internal control of the company specific to the occurrence of sales revenue.........5
Audit procedure for appropriate test of control..........................................................................5
A substantive procedure that produces reasonably reliable evidence for the occurrence of
sales revenue..............................................................................................................................5
Conclusion..................................................................................................................................6

RISK ASSESSMENT AND AUDIT STRATEGY2
Introduction
The main purpose of this paper is to talk about the different kinds of risks that are
expected in a company that is primarily into the business of manufacturing of furniture. In
this context, various factors have been discussed that directly impact such risks. These risks
are then matched up with suitable audit strategies required for their mitigation. Different
management assertions of the internal controls are stated along with the techniques of
managing the misstatement for the occurrence of sales. Suitable explanations are provided for
assessing the different ratio figures. Based on these risks, the audit strategies are prepared
accordingly. The impact of these strategies on the conduction of the audit testing are also
mentioned. At the end section, the appropriate control and substantive test of audit are briefed
in accordance with the organisation.
Discussion
Part - A
Inherent risk of the audit client and degree of the risk
Mung Ltd. Company has the primary business of manufacturing home and office
furniture. In the recent times, the company has seen a growth in its profit figure at around 6%.
The board of directors are satisfied with the performance and the CEO of the company was
rewarded with cash bonus.
Inherent risk can be judged on the basis of the internal controls of the company. The
level of inherent risk increases or decreases based on the way the company operates. This is
measured through several factors. In this company, one of the factors that has led to the
increase of inherent risk of the company is the slowing down of the inventory turnover ratio.
This has been reported to have occurred due to the increased number of competitors. The
competitors also have opened new stores that are close to that of the company. Another