Consider the following two independent material events:
i. Bartholomew Mumford was the Chief Executive Officer (CEO) and director of Little Lion Ltd, until he suddenly passed away. After his death, his son Benedict Mumford became the new CEO of Little Lion Ltd and begun on a cost-cutting exercise throughout the organisation, which included a reduction in key staff in the credit department.
ii. During the planning stage of the audit of Little Lion Ltd, the audit senior assessed the sales control systems to be effective. But when testing sales, the audit assistant traced two sales to supporting documentation (sales invoices) with dates for the prior financial year.
For each of the two events described above:
(a) Provide a brief explanation as to why the situation constitutes an audit risk.
(b) Indicate and justify the component of the audit risk model affected (i.e., inherent risk, control risk, or detection risk).
(c) Indicate the key account balances(s) affected.
(d) Indicate the audit assertions(s) to be tested.