Audit Risk
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Audit Risk
The audit risk will be evaluated using the model where:
Audit risk = Inherent risk x Control risk x Detective risk
Research in Motion (RIM) is listed on the Nasdaq Stock Market and the Toronto Stock Exchange. Since it is publicly traded with a large loan from creditors, the assurance level has been set at a high level, this, in turn, requires a relatively low audit risk.
Inherent Risk
Inherent risks are risks that are beyond the control of management and it is hard to avoid. The following are inherent risks that exist within Research in Motion.
Theft: RIM sells handheld products. These products are small, portable and thus, making it more susceptible to theft. Because of this, it creates an inherent risk as inventory would be overstated in the company's accounting records. This risk can further be detected by the use of an effective control. Control such as marking down the number of handheld produced and reconciling such records to the number of handheld shipped to customers can assist in eliminating theft. Since handheld is small and hard to count to keep accurately, auditors should carefully inspect the production process and identify possible areas of risks...