[01081576]

Does any one know about this scenarios “Achieve second most profitable time this year, but sales are not met management expectation”?

How does this affect on IR, CR or DR?

[mylifeisover]

I am interested in seeing everyone post about this question. I take AUD 07/15/16
Sucks I will have to wait until Aug 4 to find out the outcome

ROAD TO CPA

AUD - 59, 73, 86
BEC - 72
FAR -
REG -

[Anonymous]

@01081576

I have the same question

It confuses me this kind of question :/

[01081576]

there is an answer: No impact on CR. I don't know why. My test will be July 16th.

[Anonymous]

Can the OP try re-wording his question? I read it last night but wasn't really sure what was being asked. I thought I'd see if someone else understood and could answer, but since no one else has answered and others have asked, perhaps the OP (or one of the others with the same question) could try asking the question a different way and see if I or someone else can address it more easily with different wording?

[01081576]

@Lilla

Scenario: “The client achieved second most post profitable time this year, but sales are not met management expectation”.

Question: how to impact on IR, CR, and DR?

My opinion: inherent risk ↑, control risk not impact, detection risk ↓

But I am not sure.

[Anonymous]

Where is the scenario from? Is it a MCQ? It doesn't seem to be worded properly, or seems to be missing part of the explanation, or something. “The client achieved second most profitable time this year” – what does that mean? They surpassed their time goals? Or the period of time under discussion – the past year – was the second most profitable in the company's history? Etc. Same with the second part. The wording is either missing something or poor or just one sentence pulled out of a problem. I thought in the original post that it was a sample scenario you'd created, which is why I'd suggested re-wording, but since you've written it the same way, I'm guessing you get it from somewhere (MCQ, SIM, etc.), but maybe there's something more that's missing?

If what it means is:
The company had its 2nd most profitable year in history, but sales were below the levels that management expected

Then:
My thoughts would be that there's a great risk of misstatement, since having high profits with lower sales doesn't sound right. So, I'd want to say all risks went up, but maybe inherent risk doesn't change. However, risk of a bad control (that's CR, right?) seems like it would be up, cause this looks like an error. That would also mean DR is up, cause there's a risk I wouldn't catch it, right? IR might not be affected, since the nature of the transactions hasn't changed.

I'm not great with the IR, CR, and DR stuff. But the wording of the question still throws me off, so my analysis may be completely wrong even if I knew what I was talking about. 🙂

[01081576]

@Lilla

It is confusing. I got this simulation scenario from someone who just took the audit test.

I guess that client has high profit but sales are not met expectation for audit year.

So I agree with you that there is a great risk of misstatement, may be inherent risk increased, or control risk increased, or both increased.

This scenario does not talk about internal control, I thought inherent risk increased..Not correct???…Inherent risk is the susceptibility of an assertion to a material misstatement, assuming that there are no related controls.

Based on the higher risk of misstatement, the detection risk should be decreased because auditor will expand more substantive procedures to reach the low audit risk

[Anonymous]

So, the scenario is someone's best recollection of what was on the exam? In that case, they're breaking their exam disclosure agreement by even telling you about it, and you're better off to practice from the AICPA released SIMs which have the full question. There's probably pieces here you're missing. The question would have been a LOT longer than that statement, especially as a SIM, so there's more to it than what you've got to work with. I wouldn't stress out over not understanding what someone said they saw on the exam; they're fraudulent people to start with (breaking their word in their disclosure agreement), so not someone I'd put a lot of stock in what they say, and they're telling you what they think they remember of their exam after 4 hours of taking it. It's not something that's going to be super-exact and super-reliable.

Like I said, all the which-risk-is-which isn't my strong suit, so I don't know exactly how they all relate. However, knowing that this is part of someone disclosing information they weren't supposed to, I'm not sure I'd even want to participate further in trying to explain it. 😐

[Anonymous]

@lilla – I'm following what you are saying. the only one I would change is DR – the DR moves to offset changes in the IR or CR so that they remain at the same acceptable level of AR. so if CR goes up, then DR must go down which means the auditor needs to do more work to make sure they aren't missing anything.

@01081576 – I don't think IR would change.. internal control is the driving piece behind CR. if a company has good internal controls then the CR will be low because their process will catch most mistakes.

[Author]

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