Question - Audit risk model MEDIUM
Consider the following independent situations, all of which apply to audits of entities for the year ending 30 June 2015:
(a) One of Kitchen Ltd's major product lines is the Quick Serve, a 'no frills' microwave oven. Over the last three months, warranty claims on the Quick Serve have tripled from 3 per cent of sales to 9 per cent of sales. The problem appears to relate to the glass turntable, which may shatter if the oven is used constantly at full power.
(b) Wings Pty Ltd (Wings) is a small primary producer specialising in the production of vacuum-packed emu meat. Wings' recent display at a trade show has seen orders flood in from overseas buyers. The accountant, Louise, has done her best to satisfy the orders as quickly as possible while maintaining the appropriate (foreign currency) accounting records. However, based on some of the questions she has been asking you, it appears that she is out of her depth.
(c) Alpha Ltd (Alpha) distributes and markets snack foods to major supermarket chains around Australia. During the year, four members of staff were dismissed for stealing inventory and selling it to a small convenience store at discount prices. It is believed that the practice had been carried out for at least 18 months. The four staff members were working in different departments and had been able to cover their activities through fraudulent journal entries. The CEO of Alpha, Graham Handley, is confident that all parties involved have been identified and legal action has been taken.
REQUIRED: For each of the independent situations above, identify the specific component(s) of audit risk that would be affected and explain how they would be affected.