Bestwood Furniture, Inc., a nonissuer that produces wood furniture, is undergoing a Year 2 audit. The...

  

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Bestwood Furniture, Inc., a nonissuer that produces wood furniture, is undergoing a Year 2 audit. The situations below describe changes made during Year 2 that may or may not contribute to audit risk. For each situation, select the impact, if any, that the situation has on a specific component of audit risk for the Year 2 audit. Selections may be used once, more than once, or not at all. Consider each situation independently. 1. In Year 2, the auditor noted that the company's newly hired purchasing agent was not obtaining competitive bids for all major purchase requisitions as required. Decreases detection risk 2. Early in Year 2, the company expanded its warranty program to cover additional major products in an effort to increase sales. Increases inherent risk 3. The audit partner decided that the audit team needed to perform additional tests of detail over payroll in addition to the substantive analytical procedures done last year over payroll. Decreases inherent risk 4. In Year 2, the company budgeted for the creation of an internal audit department, which will commence operations in Year 3. Decreases control risk 5. In January Year 2, the corporate controller implemented a supervisory review of all internally prepared reconciliations. The auditor determined that the controls are designed and Increases detection risk operating effectively for the period. Bestwood Furniture, Inc., a nonissuer that produces wood furniture, is undergoing a Year 2 audit. The situations below describe changes made during Year 2 that may or may not contribute to audit risk. For each situation, select the impact, if any, that the situation has on a specific component of audit risk for the Year 2 audit. Selections may be used once, more than once, or not at all. Consider each situation independently. 1. In Year 2, the auditor noted that the company's newly hired purchasing agent was not obtaining competitive bids for all major purchase requisitions as required. Decreases detection risk 2. Early in Year 2, the company expanded its warranty program to cover additional major products in an effort to increase sales. Increases inherent risk 3. The audit partner decided that the audit team needed to perform additional tests of detail over payroll in addition to the substantive analytical procedures done last year over payroll. Decreases inherent risk 4. In Year 2, the company budgeted for the creation of an internal audit department, which will commence operations in Year 3. Decreases control risk 5. In January Year 2, the corporate controller implemented a supervisory review of all internally prepared reconciliations. The auditor determined that the controls are designed and Increases detection risk operating effectively for the period.

Answer rating: 100% (QA)

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