Auditing Case Study Example | Topics and Well Written Essays - 1000 words

Auditing - Case Study Example altered year to year, these changes would create an inherent risk that Nathans Finance would not be able to meet those requirements and ultimately financial statement would not present the true and fair view. 1. There is a risk that there are no appropriate controls over revenue recording and the revenue of the next year is included in the current year’s figure which ultimately results in 42.5% increase in total sales. 3. There is a big increase in the revenue, but advertisement expense is only $53,445 in 2005 against $313,356 in 2006 (Nathans Finance NZ Limited, 2006). This may reveal control risk because this huge increase in advertisement expense may exposed that there are no related controls. Detection risk is a risk that the audit procedures performed by the auditor will not be able to detect and prevent the material misstatement in the financial statement. Some of the detection risks in Nathan Finance are mentioned below, 1. There is a big increase in the revenue, but advertisement expense is only $53,445 in 2005 against $313,356 in 2006 (Nathans Finance NZ Limited, 2006) auditor may not be able to detect the potentioal oversttement in the revenue. 2. Purchase of new vending machines for $11.32 million. It may either be fictitious or it may be leased asset. There is a greater risk that the auditor is unable to detect any potential fraud of error in this significant transaction. 3. Decrease in salaries and wages in comparison to last year may suggest that the management is concealing the expense to show higher profits, because in normal circumstances salaries expense increases. Audit procedures may fail to detect this potential error or fraud. 4. Increase in intercompany advances from $60.7 million to 79.6 million. This is related parties transaction and the management can create fictitious advance which would be difficult for the auditors to detect. 5. Sharp decrease in long-term finance receivables from $45.1 million to $34.07 million in 2006.