1. the audit firm of PWC evaluates the risk of materialmisstatement by disaggregating the total risk into its maincomponents and sub components as indicated below
(a) inherent risk, (b) Control risk, (c) Detection risk (d)Operational risks, (e) finance risk and (f) compliance risk
required:
for each of the scenarios below, select the component of riskthat is most directly illustrated. the component may be used once,more than once, or not at all. also suggest the effect on thefinancial statement and hoe the auditor might mitigate the risk(you may present your answer in the format below)
SCENARIO COMPONENT RISK EFFECT ON THE FINANCIAL STATEMENT HOW TOREDUCE THE RISK
A
B
C
D
E
F
A) A client fails to discover employee fraud on a timely basesbecause bank accounts are not reconciled monthly
B) The client's business manly deals with cash sales which ismore susceptible to theft than credit sales
C) Confirmation of receivables by a new audit staff fails todetect a material misstatement
D) Disbursements (payouts) have occurred without properapproval
E) There is inadequate segregation of duties in the payrollsection
F) The client is very close to violating debt covenants
G) XYZ Company, a client, lacks sufficient working capital tocontinue operations
