5
　　SPECIFIC ASPECTS OF AUDITING IN A COMPUTER-BASED
　　ENVIRONMENT
　　JANUARY 2011
　　this facility may be utilised by the auditor when auditing salaries and wages in
　　the client’s financial statements. Similarly, a facility to report trade payable
　　AUDIT RISK
　　NOVEMBER 2011
　　? valuation of inventory – when, for example, there are considerable levels
　　of aged inventory
　　? completeness of liabilities – this could arise if provisions have been
　　incorrectly treated as contingent liabilities
　　? completeness of revenue – this could be relevant where the entity being
　　audited has significant cash sales.
　　Responses to audit risks
　　Having identified the audit risk candidates are often required to identify the
　　relevant response to these risks. A common mistake made by candidates is to
　　provide a response that management would adopt rather than the auditor.
　　From Question 3b June 2011, in relation to the risk of valuation of receivables,
　　as Donald Co had a number of receivables who were struggling to pay, many
　　candidates suggested that management needed to chase these outstanding
　　customers. This is not a response that the auditor would adopt, as they would
　　be focused on testing valuation through after date cash receipts or reviewing
　　the aged receivables ledger.
　　Auditor’s responses should focus on how the team will obtain evidence to
　　reduce the risks identified to an acceptable level. Their objective is confirming
　　whether the financial statement assertions have been adhered to, and whether
　　the financial statements are true and fair.
　　Responses are not as detailed as audit procedures; instead they relate to the
　　approach the auditor will adopt to confirm whether the transactions or
　　balances are materially misstated. Therefore, in relation to the risk of going
　　concern, the response is to focus on performing additional going concern
　　procedures, such as reviews of cash flow forecasts.
　　Also, auditor responses should not be too vague such as ‘increase substantive
　　testing’ without making it clear how, or in what area, this would be addressed.
　　In addition, candidates’ must ensure that they do not provide impractical
　　responses. A common example of this is to request directly from the
　　company’s bank as to whether the bank will provide a loan or renew a bank
　　overdraft. The bank is not going to provide this type of information to the
　　auditor, especially if they have not yet informed the company, and therefore
　　this response will not generate any marks.
　　Limited range of risks identified
　　In order to score well in risk questions it is advisable to aim to identify a
　　breadth of points from the question scenario. If the question asks for a specific
　　number of audit risks, such as five, then it is not sufficient to identify just one
　　or two risks. In addition, a common mistake is to identify a risk such as going