Question $4$

$(20$ marks total$)$

Audit Risk and Components of Audit Risk

Kate Sandringham is an audit partner of Kensington & Co$.$ She is considering Audit

Risk at the overall financial statement level in planning the audit for a property

investment client, Property Ventures Limited $($Property Ventures$),$ for the year

ending $30$ June $2019.$

Kate has gathered the following information concerning Property Ventures.

Property Ventures is anticipating listing on the stock exchange $($an IPO$)$ early in

the next financial year.

Property Ventures directors are considering diversifying the investment focus

of the company by establishing a virtual currency trading platform.

The Chief Executive of Property Ventures sold a property he personally owned

to Property Ventures.

Property Ventures is experiencing a particularly high rate of staff turnover

within its accounting team.

The directors have implemented a management performance bonus scheme. If

certain financial targets are met, then certain management will receive bonuses

of $5\%$ to $50\%$ of their existing remuneration.

Required

$($a$)$ Explain the components of the Risk of Material Misstatement.

$(4$ marks$)$

$($b$)$ What is the nature of the relationship between the Risk of Material

Misstatement and Detection Risk

$(1$ mark$)$

$($c$)$ Based only on the information provided for each of the FIVE matters above

explain why they would impact Sarah's assessment of Audit Risk and for

each suggest TWO actions that Sarah should take to address the risk in the

audit of the financial statements.

Note: Prepare your answer using two columns headed 'Why an impact on Audit

Risk' and 'Actions to Take' respectively.