Auditing and Assurance: Risk Analysis of CBA and JB hi-fi

This assignment analyzes the inherent risks and audit procedures for two companies, CBA and JB hi-fi. For CBA, the assignment addresses risks related to derivative instruments, management estimates, and the relationship with auditors. It examines the impact on financial statement assertions like occurrence, completeness, accuracy, and cutoff, detailing specific audit procedures. For JB hi-fi, the assignment focuses on risks associated with increased competition, damage to reputation, and digital assets. It explores how these risks affect assertions such as occurrence, rights and obligations, and completeness, and outlines corresponding audit procedures. The solution includes justifications for inherent risks, affected assertions, and ledger accounts, along with detailed audit procedures for each identified risk. The assignment uses financial data and industry knowledge to provide a comprehensive analysis of the audit process.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
University Name
Student Name
Authors’ Note

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AUDITING AND ASSURANCE
Table of Contents
Solution to Question 1 (A) and 1 (B).........................................................................................2
References..................................................................................................................................8

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AUDITING AND ASSURANCE
Solution to Question 1 (A) and 1 (B)
CBA
Inherent Risk Justification Assertion and Ledger
Accounts Impacted
Audit Procedure
1)Handling derivative
instruments and
carrying derivative
valuation adjustments of
CBA involves inherent
risk
As per annual report of
FY 2017, CBI’s
trading income is
registered to be $1149
million that is due to
desirable derivative
valuation adjustments.
Complex transactions
in the financial service
segment with exposure
in derivative
instruments bears
inherent risk (William
Jr et al. 2016).
Assertions regarding
transaction classes are:
-Occurrence-Firm’s
transactions as well as
events that have been
registered have
occurred and pertain to
the company. This risk
also affects this
assertion (William Jr et
al. 2016).
-Completeness-
Completeness refers
recording of
transaction amounts
and other data that
needs to be registered.
In this case this might
get affected in this case
-Accuracy- level of
accuracy refers to
recording of
The assessor might
require particular
knowledge for
planning as well as
performing audit
procedures for specific
assertions.
-In this case, the
assessor might
consider obtaining
thorough
understanding
regarding the
information system for
particularly derivatives
as well as securities of
the entity.
-It is important to
recognize controls
positioned by service
corporations that
delivers service and

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AUDITING AND ASSURANCE
transactions as well as
events correctly. In this
case, managing
derivative instruments
and adjusting the same
might affect the level
of accuracy.
Cut off- It is also
important that
transactions have been
registered at the
correct period of
accounting.
Accounts that might
get affected include the
assets and liabilities
are a part of the
information system for
mainly derivatives as
well as securities
- Comprehending
application of the
accounting principles
for specific assertions
regarding derivatives
that again might
require auditor to have
knowledge owing to
intricacy of principles
-Understanding the
precise process of
determination of
particularly fair value
of the derivatives
counting the suitability
of various models of
valuation.
-Examining both
inherent as well as
control risk for specific
assertions regarding
the derivatives utilized
in hedging activities.
2) Inherent risk is Estimation techniques In order to understand Auditors might

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AUDITING AND ASSURANCE
involved in use of
estimates from
management
of Fair value (for
hedging and IFRS
volatility, treasury
shares valuation,
interest bearing
liabilities and many
others) that is used by
management of CBA
poses inherent risk as
this accounting
estimates using fair
value are difficult in
nature
the reasonableness of
the accounting
estimates that are used
by the management, it
is important to identify
the data source as well
as factors used in
estimations and
assumptions, and
thereafter consider
whether the factors are
relevant, consistent,
reliable as well as
sufficient for the
purpose (William Jr et
al. 2016). Therefore,
the relevant assertions
that are related to the
estimate
Accounts: Assets
estimated at fair value
through the statement
of income, liabilities at
fair value.
examine and interview
the decision makers of
the corporation
regarding the use of
estimation techniques
to lessen error
(William Jr et al.
2016). The critical
steps/procedures in
this regard comprise of
formal along with
documented evaluation
of how the items that
are subject to
estimation are
recognized. Also, the
assessor has the need
to see the way the
client recognizes and
examines uncertainty
of estimation,
susceptibility of
particularly accounting
estimates. Further, the
auditor might consider
the way the company
has recognized various
new items that are

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AUDITING AND ASSURANCE
necessarily subject to
particular estimates. In
addition to this, the
assessor might
consider examination
of the source data that
is utilized and based
upon which estimate is
based.
3) CBA has a business
relationship with the
auditors
PricewaterhouseCooper
s (PwC) for audit and
non-audit services, and
there are repeated
engagements with the
assessors that can create
inherent risk.
The repeated
engagement with the
auditor might lead to
inherent risk as
repeated engagement
might cause
overconfidence owing
to personal
associations.
Assertions that might
get affected include:
-Completeness:
Assets/liabilities that
were supposed to be
registered have been
identified
-Classification: This
calls for proper
classification and fair
presentation of
transactions in the
financial statements.
Repeated engagements
might hamper that as
well.
-Accuracy- in this
case the accuracy that
refers to accurate
Auditors essentially
develop knowledge as
well as experience
after engaging and
working with their
client for several
number of years.
Auditors might utilize
this knowledge to
lower the level of risk
(Waldron 2016).

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AUDITING AND ASSURANCE
recording of
transactions in the
financial statements
might get affected due
to overconfidence of
the assessor
Revenue and
expenditure accounts,
different accounts of
assets and liabilities

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AUDITING AND ASSURANCE
JB hi-fi
Inherent Risk Justification Assertion and Ledger
Accounts Impacted
Audit Procedure
The retailer faces
inherent risk of
increase in competition
The company is
operating in a crowded
space operating in the
home appliance areas.
The market in which
the business concern
operates mainly remain
competitive and any
enhanced competition
from new as well as
existing competitors
might lead to decline in
sales as well as
profitability of the
firm. The volatile
market in the current
period poses inherent
threat of declines in
sales. In addition to
this, competition is also
faced by the firm from
different online
platforms although the
company enhanced
Revenue and sales
account
Assertions Impacted:
-Occurrence:
Transactions identified
in the financial
statements have the
need to actually occur.
The risk of competition
might lead to
overstatement of
earnings and might
affect the assertion of
occurrence (Ge et al.
2016).
Completeness:
Similarly completeness
that requires that the
assets/liabilities that
were thought to be
registered have been
identified in the
financial statements
(Ge et al. 2016).
-The auditor might
consider the level of
completion faced by
the company in that
specific industry, size
of the client in
comparison to that of
the competitors
-The assessor might
also evaluate the
reputation of the client
among all their peers
and the support of the
government for the
company functioning
in that industry.
-Another important
consideration is the
analysis of the demand
level of the products
and for
products/services
delivered by the
company and diverse

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AUDITING AND ASSURANCE
online presence by
around 35%.
facets that exert impact
on the demand.
-In this case audit
procedure also includes
consideration of the
influence of the
government support.
This issue is important
when the company
faces considerable
global competition.
-Evaluation also needs
to be carried out
regarding the influence
of the regulations of
the government on the
company along with
the industry in which
the company functions
(Fu et al. 2015).
-The audit procedure
might include proper
monitoring of pricing
and market share data,
monitoring of
complaints, customer
service and
engagement analytics

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AUDITING AND ASSURANCE
(Waldron 2016).
The retailer faces
worry regarding
damage of reputation.
There exists business
risk of loss or else
erosion of reputation
although business of
JB hi-fi enjoys both
loyalty as well as trust
with clients (Arens et
al. 2016). Essentially,
a decrease in high level
of loyalty as well as
trust can compromise
the overall market
leading position of
specifically businesses
of JB hi-fi and affect
the operating along
with financial
performance of the
entire group. As per
annual report, this can
happen owing to
information security
breach of IT system,
violation of the
regulatory or legislator
necessities and many
Profit and loss
accounts, sales account
Assertions Impacted:
-Occurrence as well
as rights and
obligations: This
assertion refers to
divulged events as well
as transactions that
have actually occurred
and at the same pertain
to the specific entity.
The loss of reputation
might affect this
specific assertion (Fu
et al. 2015).
-Completeness: This
refers to different
disclosures that should
have been counted in
the financial
pronouncement have
been included (Ge et
al. 2016). This specific
risk might therefore
affect this assertion.
It is important to
monitor the overall
reputational risk in
which social media
might have profound
influence. Different
types of risk divisions
that appear to be a
logical fit or can permit
business units to
generate to risk
management schemes.
Essentially, reputation
risk audit have the need
to analyse internal as
well as external
reputation risk. This
includes development
of comprehensive
action plan that include
formulation of
strategies as well as
strategies for
prioritized risks,
timeline as well as
execution, proper