AUD – Control Risk and Inherent Risk

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  • #160928
    Soproudofmyself
    Participant

    I’m having a hard time understanding why

    1) Control Risk decreases as a result of the internal audit dpt distributing payroll checks to employees for selected payroll cycles.

    2) Inherent Risk increases as the company extends it’s existing warranty program on some of its major products in an effort to increase revenue.

    This is from a simulation on the AICPA’s website…

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  • #290264
    SusanStudies
    Participant

    Control Risk decreases because someone other than the payroll dept is distributing the paychecks. The custody function is kept separate from the recording function because the internal audit department is distributing the checks, not payroll.

    Inherent Risk increases because the company is extending more warranties on their products. Without controls, the risk the F/S (warrantly liability) could be understated increases.

    AUD: 07/11/11 - Passed
    BEC: 08/27/11 - Passed
    FAR: 01/17/12 - Passed
    REG: 04/30/12; Re-take 7/16/12 - Passed

    FINISHED!!!!!!!!

    #290265
    IwannaBaCPA
    Participant

    Well put Susan. I totally agree!

    BEC: 79 - April 2011
    FAR: 78 - May 2011
    AUD: 81 - May 2012
    REG: 79 - October 2012
    Ethics: Passed - March 2013
    I am finally DONE!

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