Enterprise Risk / Business Risk– those risks that affect the Company’s operations and overall organizational activities. In preparing this section, you are primarily to focus on the nature of the Company’s business and the related environmental factors which affect it, and your perceptions of the inherent risk factors involved.
Information Risk – those risks of disseminating misstated information to users of the financial statements. In preparing this section, consider who the potential users are of Fennec’s financial statements (known, foreseen, and foreseeable users – See Textbook Chapter 4) and those areas that may be (more) susceptible to risks in reporting. What areas might require special attention during our audit so that we minimize our Audit Risk?
AUDITOR CONCERNS
Engagement Risk – those concerns that we, the auditors should consider as we review
our client retention decision for the 2019 fiscal year-end audit. (Note that we became the
auditors of record for the quarter that ended June 30, 2017; and thus, this will be our third
annual audit for the Company.) Have there been any changes in the environment since
our last audit? What factors should we at Haskell & White consider in making our
retention decision to continue on with the 2019 audit? After all, we need to manage our
own Business Risk once we have agreed to continue with the audit of Fennec.
Materiality – the magnitude of a misstatement or omission that could affect the user of
the Company’s financial statements and related data. Without trying to calculate any
“value” for materiality, discuss your observations about the Company that may affect
your views on the “qualitative aspects” that should be considered for the level of
materiality to be used for purposes of conducting the audit. Consider those
balances/transaction cycles you consider to be significant as well as trends, ratios, or
other information that would have a bearing on your determination of materiality for
purposes of the audit.
Audit Risk – the risk that we could issue an unqualified/unmodified audit opinion on
financial statements which include a material misstatement. Giving consideration to
materiality (above), what are the specific areas on which we should focus to reduce our
audit risk to an acceptably low level?
Sample Solution
