Auditing and Assurance: Risk Assessment Report Analysis and Findings

This report examines audit risks associated with a company, Forest Ltd. It identifies risks in accounts payable, highlighting potential misstatements due to currency conversion errors and month-end rollovers. The report also discusses risks related to commitments and contingencies, specifically overstating liabilities. Furthermore, it analyzes inventory management risks associated with the conveyor belt and timber purchases. The report concludes by addressing risks related to receivables, specifically the impact of a customer's non-payment due to product quality issues. The analysis includes the application of auditing procedures to assess the potential for material misstatements and provides an overview of the areas of audit risk involved in the process.

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

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Identification of two different factors in the information provided that in turn can enhance
audit risk:-
i. Accounts payable:
 Forest Ltd has modified and upgraded the accounts payable structure to a
fully assimilated package that routinely can update the general ledger of
the firm. However, there are certain issues associated to amounts that are
divided into $US as well as AUD. Essentially, specific cases can be
observed where USD is registered as AUD erroneously, leading to
inaccurate balance of creditors. Therefore, in this case, the auditor might
encounter the risk of declaring an unqualified declaration owing to failure
of the evaluator to detect material misstatement either owing to error or
else fraud (Chandler 2014).
 Again, month end rollovers also pose risk as credit balances are
mechanically set to amount zero at the beginning of each and every month.
This calls for the need of entering the credit balances manually every
month and this process involves committing the mistake of wrongly
entering the credit balances that in turn can lead to unqualified
misstatements.
ii. Commitments and contingencies
 Disclosure of commitments mainly comprise of the nature, amounts as
well as any unusual terms along with uncertainties of company’s
commitments (William Jr et al. 2016).
 Contingent liabilities refer to the future expends that might possibly occur
in the upcoming period. General instances consist of lawsuits, particularly
warranties on products as well as unsettled taxes of corporations (Chandler

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2014). The company might perhaps overstate contingent liabilities and
scare away potential financiers. The given case states that a protestor of
the firm suffered a broken leg, supposedly hit by a truck and is suing the
company for damages, asserting that the affected was an employee of the
corporation (William Jr et al. 2016).
iii. Inventory:
 A gigantic conveyor belt is utilized to transport woodchips from
particularly mill of the company Forest Ltd to the stockpile. The given
case states that as per current figures, it is anticipated that the present
conveyor will work until December 2017. Again, adequate spare parts are
also said to be on hand to undertake routine regular maintenance work.
Therefore, audit risk involves examination of overstatement or
understatement of inventory for presenting unqualified opinion (William Jr
et al. 2016).
 The auditors also need to assess timber purchase proportions from
plantations as well as state forests. Also, assessment of management of
inventory of timber is important as this can upset both the contractors and
the agitated environmental groups (William Jr et al. 2016).
iv. Receivables:
 Occupational fraud might be associated to the item accounts payable. One
of the customers of Forest Ltd, Wood Ltd is refusing to make payment of
the supplied woodchips that is already overdue for a period of 5 months on
charges of supplying dilapidated products (woodchips contaminated with
microbe). This leads to the company’s audit risk regarding ascertainment
of the current receivable of the firm.

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 The company has initiated an investigation into the specific allegation and
payment due depends on outcome of the case (Chandler 2014). In this
case, audit risk is involved in the process of determination of outcomes of
the case under investigation.

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References
Chandler, R., 2014. Auditing and assurance. London School of Economics. London.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A
systematic approach. McGraw-Hill Education.