Comprehensive Audit Risk Assessment and Reporting: Finance Module

This report delves into the intricacies of audit risk, focusing on its identification and mitigation within the context of financial auditing. It begins by defining audit risk and its implications, particularly the potential for inadequate opinions on financial statements. The report then dissects the components of audit risk, including inherent risk, control risk, and detection risk, illustrating how these factors interact to influence the overall risk assessment. The analysis incorporates a case study of Coca-Cola Amatil, exploring the company's approach to risk management and the specific risks it faces, such as water scarcity, labor costs, and regulatory changes. Furthermore, the report outlines the audit process, emphasizing the importance of understanding the client's industry, internal controls, and potential for misstatements. It details various audit procedures, including inspection, observation, inquiry, and confirmation, and explains how auditors use these methods to gather evidence and assess the risk of material misstatement. The report concludes by emphasizing the importance of a comprehensive approach to risk assessment to ensure the reliability and accuracy of financial statements. The report is a valuable resource for students studying finance and auditing, offering a practical understanding of risk assessment and mitigation strategies in the context of financial reporting.

Auditing Theory and
Practice

Table of Contents
INTRODUCTION...........................................................................................................................1
Question 1...................................................................................................................................1
Question 2...................................................................................................................................1
CONCLUSION................................................................................................................................2

INTRODUCTION
Risk is major concern which has to be identified in order to make their business
operations in an effective manner. There are number of qualified professionals who are
specialised in identifying risk related problems and also tries to eliminate or limit them
effectively. However, there are certain things that are needed to be done. Coca-Cola firm has
procedurally ranked itself as a world leader in beverage industry (Sharma and Panigrahi, 2013).
Risk continue to be the high for the industry because, it is mainly depends on water scarcity and
pathetic quality impact production costs and capability, laws affect sales at particular point of
sales, and increasing labour rates and healthcare costs in Australia further weigh down on its
profits margin.
Question 1.
Audit risk is the risk under which auditor renders an inadequate opinion and views on the
financial statements. Some of the inadequate opinions are mentioned hereunder:
 Producing an unqualified audit report where a qualification is sufficiently reasonable;
 Producing a qualified audit views where no qualification is essential.
 Failing to emphasis an imperative matter under the audit report;
 Rendering an views on financial statements where nothing is provided due to a major
limitation of scope under the performance of the audit.
An audit risk s the combination of Inherent risk* Control risk* Identifies risk. This is the
risk which might considered as a good of different risks that might be encountered under the
audit performance. One of the component of Inherent risk is mentioned hereunder:
Inherent Risk: This is the risk of material misstatement under the financial statements accrues
because of error or omission as a outcome of factors instead of failure of controls. This is
presumed to the higher at the time of higher degree of judgement and prediction involved or
where transactions of the firm is extremely complicated (Healy and Palepu, 2012). For instance,
Inherent risk under the audit of newly incorporated financial institution that has a major trade
and exposure under the complicated derivative instruments might be adopted to be majorly
higher as highly compared to the audit of a well incorporated to the audit of a most renowned
producing concern operating in a stable competitive environment.
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Coca-Cola Amatil has a deep and stringent concept to risk administration and
determining major risks is an ongoing core firm activity. While company's authorised
representative do not need to determine particular risks for their firm covering customer
confidants levels and negative economic conditions in a nations where firm do business and
issues like-unintended legislation and regulatory alterations. CCA is one of the key player in the
Asia-Pacific region. The firm has an main agreement with its 29.2% main shareholder TCCC, to
produce and distribute Trademark manufacturing in six nations.
Underpinning our firm risk assessment on CCA is the group's sound market position as
the exclusive Coca-Cola bottler in Australia and New Zealand. In addition, the group has a sound
portfolio of brand names and goods; leading market shares; and a large, enough distribution
network. Tempering these strength are emerging competition in Australia and New Zealand, and
group's exposure to high fluctuation in Asian markets.
Potential Misstatement arises due to fraud or error. On the other hand, a misstatement arises at
the time when there is difference between reported figures, and what is estimated to be reported
for presenting financial statements fairly. This can be factual, in the case of clear breach of a
need of financial reporting standards, or can be decisional, producing from unsuitable forecasting
techniques or selection of inappropriate accounting policies.
Attaining and investigated of the audited company, this is so tough to adequately assess
the risk of materiel misstatement. ISA 315 needs that the auditors gets an understanding linked to
five aspects of the audited CCA:
1. Relevant industry, laws and other external issues covering the relevant financial reporting
framework.
2. The nature of the firm covering its operations, its ownership and others.
There is a strong requirement of ISA 315 which the auditor consider an understanding of internal
control regarding to the audit. This is the very important step in assessing risk of material
misstatement, as one of the factors of audit risk is control risk, identified as the risk which a
misstatement could happen can not be stopped, or identified and rectified, on a daily basis by the
firm's internal control.
Assessing the risk of material statements:
Auditor is the professional candidate which is in a position to assess and determine the
risks of material misstatement, that are required to done during the financial statement level, and
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during assesrtion level for classes of transactions, account balances and other disclusure. The
point of the risk determine is to render a basis for framing and performing under next audit
process.
Risk assessment process covers inquiries of management and other concerned
individuals, assement processes, observation and enquiry (Čihák and et. al., 2013).
This is most crucial part of assessing the risk of material misstatement is that the risks
determined must be proiritised. That is why, ISA 315 identifies which risks that are determined
as being crucial risks needs particualar audit consideration. It is a matter of opinion as to whether
a risk incorporates a crucial risk, and matters like- the complicated of the transaction, whether
there is a risk of fraud, the covering of connected parties, and whether the transaction is non
operating should be advised.
The risk assessment outlined above takes place in the starting place under the planning
form of audit. In fact, as the audit develops might come to light that renders extra investigation
into the firm's operations and internal control. This might also essential to revise genuine risk
assessment, and alter the planned audit processes in processes in effect to advance risks
determined.
The impairement of goodwill can be opted a risk for misstatement in the financial
statement, highligting nature of impairements connecting iontengible assets. The procedure of
impairing goodwill needs judgement and a knowledge of the company and the nature of the
resources available to the company to produce a future income stream according to AASB136.
The CCA is required to evaluate the recoverable amount of the asset being calaculate for
identifying higher of the assets fair value less cost of disposal and its value in implement
(Chandra, 2011).
However, CCA financial analysts assist the firm to find out the areas where the inherent
risk is found and then tries to reduce this in an effective manner. There are certain tool which are
used by the company to identify this. Although, Inherent risk can not completely eradicated but
these are required to lowering down by way of implementing effective policies. The business is
operating in more than 6 countries which arises global currency problem, however, these can't be
completely eradicated but also need to implement strategies os that the these could lowering
down.
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Question 2
Audit risk can be defined as an inappropriate opinion made by the auditor for the
financial statements provided to him for auditing (Barajas and et. al., 2013). It can be in any form
like issuing an inappropriate audit document, producing a qualified audit suggestion where it was
not actually required or fails to include quality data in the report produced after auditing. There
are different elements of this type of risk some of which are discussed below:
 Inherent risk – It is miss presentation of resources in the audit report due to which the
results fails to give correct information. This may be due to omission of a factors that has
impact on the end results. The degree of this risk is considered to be higher if it involves
high level of judgements and calculations. Apart from this the status of risk is also more
if the transaction of institutions which are of complex nature.
 Control risk – This is another element of risk in which the risk is involved if effective
control over the activities which demands care is missing. It is crucial that management
ensure high level of inter control system so that fraud or mistakes can be minimised. This
type of risk take place in situation where auditor does not practice effective control over
the noticed examples of fraud (Bac, 2013). The error may be in the process which is
being followed in the organisation or usage of available resource etc. This may have a
great impact on the financial reports as without having effective control management can
not get the real status of the enterprise which is very important while making the decision
for future.
 Detection risk – Under this type of danger the auditor is incapable of identifying the
material misstatement in the books of accounts. It is necessary that the set process is
being followed in order to identify the valuable omissions so that the result presented is
free from any mistake and can be further utilised for future decision making. It is
comparatively simple to minimise this risk as by developing the numberer of illustrations
this type of risk can be reduced in auditing. In case the given error is detected than It may
lead to a great loss as omission of a valuable key point may influence the present state of
business. Therefore, it contain high degree of risk and while conducting the process of
auditing auditor needs to ensure that he does not miss out on any valuable information
that my influence the decision taking process (Allen and et. al., 2012).

In order to obtain the evidence of the audit there are different options which can be
utilised. As per the availability and conveyance of the authority a p[articular method can be
utilised. Some of those mediums are discussed below in detain below:
 Inspection – It is a process through which examination of the available records, data,
assets are conducted. An auditor can check the evidence by going through the
information provided by the other party to him. Various examples of same are proof with
the client given by bank for instance the securities. Another instance for same is records
available within the organisation with regard to sales or purchase of a particular time
period etc.
 Observations – under this process the auditor performs the duty of just observing the
work which is being carried out by the employees or others at work place. a[part from
this an auditor may also take a tour to the plant and can identify weather things are on its
place or need to be corrected.
 Inquiry – It is a different process in which interaction between two different parties take
place. For instance, it can be directly asked from a sales manager the reason behind
downfall in the net sale in comparison to sales of other accounting year (Afshar, 2013).
The main aim of this tool is to get complete knowledge regarding the subject concern.
Although it is an effective mode and can proved to be of great importance in case of non
availability of knowledgeable person this medium can not be utilised.
Confirmation – In this system an evidence is used to get the authenticity of the transactions that
took place.
CONCLUSION
From the above mentioned report, it can be conclude that risk is major part of the
company which define the negative aspect of the company that create conflicts with in the
business process. In this audit risk is an financial statement that define the misstatement material.
This risk is measured by various process which is inherent risk, it define complexity transaction
and situations that evaluate the high judgement to eliminate the uncertainties in the audit process
of the company. Inherent risk is also a part of the business activities that commonly used in the
operational community in order to control the risk which is define in the account of the financial
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statements. It assist in solving the complex transactions in financial estimates in effective
manner.
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