Question

2.1 There is a tool (way) to manage business risk. It has four parts. Explain each of them giving examples.

a.

b.

c.

d.

2.2 record the audit process in an appropriate manner

Lucy has also come to know of working papers. She is not too sure why they should be so important.

Required - Explain the following:

a. Two types of working papers.

b. 5 reasons auditors need working papers.

（I need the computer version of the font.

Please don't hand-write.thx）

Answer 1

2.1 I'm assuming you mean risk screening. It has 4 parts to it. If that's not what you mean, leave a comment about your requirement and I will get back to you.

Risk screening : The most commonly used risk assessment tool consists of 4 parts:

1. Low Impact, Low probability: These are risks with minimal effect, and a small likelihood of occurring. The main issue is monitoring to ensure neither the likelihood nor the impact increases. Eg: The probability that fans in the cafeteria stop working.
2. High Impact, High probability: Risks with high impact and high likelihood are critical and may have dangerous connotations if disregarded. In such a case, it should be examined critically to evaluate if the potential benefits are so great as to justify the high risk. Eg: An intense earthquake is predicted, which could level the entire factory.
3. Low Impact, High probability: These are largely due to uncertainty about a number of elements that may be individually minor risks but in total could even amount to a significant risk. Eg: Uncertainties revolving around the costs of materials, labour, etc. The ways to tackle these risks are Provisions for contingencies and improvements made to the work process.
4. High Impact, low probability: These are rare, unlikely occurrences which, if they occur, involve huge costs. The likelihood needs to be closely monitored constantly to ensure it doesn't rise above a specific limit.

2.2

a) Permanent working papers: These form a part of the permanent audit file and contain information and workings that are pertinent to the long term, and is valid over multiple periods.

Temporary working papers: These pertain specifically to the particular year in question and are of no use in any other subsequent years. This forms a part of the temporary audit file.

b) Working papers are crucial because:

• They facilitate audit quality control
• They contain sufficient and updated information which justifies the auditor's opinion
• Contain a record of matters that would be relevant to future audits
• In case of a suit against the quality of the audit conducted by the auditor, working papers serve as evidence to the work done.
• They provide assurance that the delegated work has been completed satisfactorily.