Problem:
In examining the risk assessment of a potential client, the company structure as well as the overall nature and complexities of the company should be understood. The nature of the entity will affect the risk assessment in terms of requiring more or less engagement planning and/or substantive procedures.
You are preparing an audit strategy and plan for Anthony's Orchard. In this process, you are looking at the company's risk assessment and the relevant controls as it pertains to the classes of transactions, balances, and disclosures. MDAC is the name of the computer system used by Anthony's Orchard, and it manages e-accounts, e-invoices, purchase orders, e-receipts, and shipping documents.
As you prepare an audit strategy and plan for Anthony's Orchard, consider each factor listed in using inquiry, observation, and analytical procedures. Rate the risk of the factors in each section (cash, accounts payable, accounts receivable) as Low (L), Medium (M), or High Risk (H), and consider the significance and likelihood of material misstatement. Provide an explanation of your reasoning for each factor.