How would the factor impact on audit plan

Reference no: EM132700426

You are the senior auditor on the IntACT Ltd audit. To date, you have obtained sufficient understanding of the company and its internal control system to assess inherent risk and control risk and plan your audit accordingly. Below are some extracted notes from your working papers:

(1) IntACT Ltd is a large established company in the horticultural industry that produces and processes timbers. It has a very good reputation among its clients for the quality of its products (sometimes it also imports some cheaper timbers from Japan) and its customer services. In last a couple of years, however, drought conditions affected the horticultural assets and increased farm operating costs. During the financial year, the company also faced a substantial deterioration in economic conditions due to the volatility in the equity market. There appears to be some significant transfer of funds between related parties.

(2) This is the sixth year of your audit and as required by law your firm has rotated the auditor partner. In the past 5 years, the previous audit partner and his team has issued clean audit opinions, and there does not appear to have been significant disagreements between the audit team and the management.

(3) IntACT Ltd has an internal audit department which reports significant deviations and/or other inappropriate operations within the company directly to the Audit, Risk, and Compliance Committee established by the board of directors. However, due to the deteriorating economic conditions and the necessity to cut the budget, the board has been discussing dissolving the committee and downsizing the internal audit department.

REQUIRED

Question 1: Using the above information for IntACT Ltd, complete the table provided detailing four (4) factors that would impact an auditor's assessment of inherent or control risk. Explain whether each factor would increase or decrease inherent/control risk. Assuming other things remain unchanged, how would the factor impact on your audit plan?

Reference no: EM132700426

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