Question

i need discription two audit risks that are applicable to Afterpay. (material misstatement & detection risk)

Afterpay was founded in 2015 by Nick Molnar and Anthony Eisen to provide a platform for allowing retailers to offer online layby. With the introduction of the Afterpay mobile app in 2017, Afterpay expanded its offerings to also be available for use at in-store retail locations.[3]

In 2017, Afterpay merged with one of its technology suppliers, Touchcorp. Subsequent to the merger, Afterpay's business operations consist of "buy now" and "pay later" business segments. Its pay later business enables retailers to offer their customers the facility to buy now and pay later without requiring traditional credit, upfront fees or interest, allowing customers to have the ability to make purchases now and pay for them in four equal payments made every fortnight without any interest. There is no interest charged to customers for using this service. However, failure to make their payments will result in a late fee. Customers are required to be over eighteen years of age to use the service.

Answer 1

There are already inherent limitations attributed to the audit but if the control procedure is not followed then the risk would be higher.

For identifying the risk that could occur significantly, management would develop an audit procedure that should help in the understanding and attitude of management while planning an audit procedure.

The two audit risk that would arise in the given situation are: -

a. Detection Risk: - The substantive test is done to assure the effectiveness of financial transactions. It helps in verifying the events that occurred and transactions done.

It verifies the validity, transaction completeness, and its presentations and disclosures should be made properly.

b. Material Misstatement: - This amounts to the risk when auditor finds the disperancies higher than the expectation or the one which involves the chances of fraud. They are occurred due to the incorrect financials of the company which can influence the decision of the investors.

While we cannot ascertain all the factors but when actual results differ from the expected one. We should go one by one to analyze the impact.

There can be several non-mitigating factors a company could face in its day to day routine. Therefore, to analyze the risk and rectifying it would save the company from a huge amount of losses.

Further due to pandemic an uncertain situation had occurred across the world. It becomes important to understand the effect of changes in the economic condition of the business.

PLEASE UPVOTE FOR THE SOLUTION