Griffith University 3102AFE: Risk Assessment and Audit Strategy Report

This report focuses on risk assessment and audit strategy, specifically addressing control risk within Mung Limited. The analysis centers on the occurrence assertion of sales revenue, evaluating the effectiveness of the company's internal controls. These controls include a perpetual inventory system with regular physical counts, restricted system access via passwords, an integrated sales and accounting system with interconnected departments, and a junior staff member checking sales transactions for errors. The report concludes that Mung Limited has a lower level of control risk due to the effective internal control system designed to ensure accurate recording of sales, minimizing fraud and manipulation, and segregating responsibilities to avoid conflicts of interest.

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

1RISK ASSESSMENT AND AUDIT STRATEGY
PART A: RISK ASSESSMENT
Answer to Question (2)
Control risk is a risk that the current internal control fails to detect or protect
against material misstatements in the financial statements. The assertion of
occurrence of sales revenue measures whether sales have been recorded when
shipment was occurred and the primary revenue producing activities have been
performed. This is a crucial assertion for the auditors since it assists in showing the
strengths and weaknesses of internal control. As per the provided case, Mung
Limited has established certain internal controls relevant to the above-mentioned
management assertion and they are discussed below.
 Mung Limited has perpetual inventory system where the inventory is
maintained through physical counts on a certain schedules and reoccurring
basis. This is a key internal control relevant to the assertion because this
system helps in ensuring the occurrence of sales through inventory counting
process.
 In spite of the presence of an integrated sales, accounting and inventory
management system, Mung Limited has restricted the access to these system
to authorized staffs through passwords which makes only sales staff
accessing the sales computer system. This reduces unwanted access to the
sales system with the aim to manipulate the sales figures. This helps in
providing the details of actual occurrence of sales in the presence of
authorization of responsibilities.
 Mung Limited has such a sales system where every operation in sales is
connected to the other one. For example, sales department is connected to

2RISK ASSESSMENT AND AUDIT STRATEGY
inventory system, inventory system is connected to the warehouse system
and the whole is connected to the accounting department. It is not possible to
proceed further in the absence of approval from the previous stage. This can
be considered as a strong part of the internal control of sales related to the
assertion that ensures the recording of sales when it is occurred. This
eliminates the scope of manipulation or fraud with the value of sales.
 Mung Limited has placed a junior member to check the recent sales
transactions with the aim to detect any duplicate or missing sales. This
provides added protection to the whole sales related internal control system
that ensures the recording of actual sales.
It can be seen from the above assessment that Mung Limited has an effective
internal control related to sales. Every component of this internal control ensures that
the correct sales amount is recorded in the correct accounting bool in the absence of
any fraud and manipulation. This internal control system has segregated the
responsibilities in order to avoid any conflict of interest related to the sales value.
Therefore, on the basis of the whole assessment, it can be said that Mung Limited
has lower level of control risk for the occurrence of sales in the presence of an
effective internal control system for sales related to the occurrence assertion.