You are the auditor in charge of the audit of the municipality of Sackville, New Brunswick. The municipality has a budget of about $65 million and has had a balanced budget for the last three years. There are about 10 people in the accounting office and the rest of the employees are operational, dealing with supervision of roadwork, garbage collection, and similar matters. Many services are outsourced, minimizing the need for employees. The municipality has a chief executive officer and a controller and reports to the council of elected representatives.
REQUIRED
For each of the following situations, state a preliminary conclusion for audit risk, inherent risk, control risk, and detection risk. Justify your conclusions. State any assumptions that are necessary for you to reach your conclusions.
1. This is the first year that you have been auditing Sackville. There has been extensive turnover after the recent election. Costs are out of control, and it looks like it may be necessary to raise realty taxes by as much as 15 percent.
2. For four years now, you have been auditing Sackville. The employees are experienced, and any control recommendations that you have suggested have been discussed and, where feasible, implemented. There is a tiny budget surplus this year, and it looks as if a balanced budget is in sight again for next year.
3. Sackville is being hit by bad press. It seems that one of the purchasing agents set up a fictitious company and was billing the municipality for goods that had not been received. To make it worse, the purchasing agent’s wife was the assistant accountant. The office of the provincial Auditor General has sent a letter to the controller of Sackville stating that the municipality has been selected for audit by the provincial Auditor General’s Office based on a random sample and that the provincial auditors will be arriving within two weeks of the completion of your audit.