Question

could you discribe two audit risks that are applicable to Afterpay. (materiality risk and detection risk)

if you could explain these risks with giving an example (hypothetical) with afterpay highly apprriciete.

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

In the case of Afterpay, noticeable risks are:

1. Inventory leaks

2. Possible Bad debtors (bad sales, that is customer purchases and never pays and the late fees piles up)

3. Number of transactions will be more

4. Identity checks of customer is required

The 2 types of audit risk are:

1. Materiality risk- The transaction, event or conditions (individually or collectively) of which omission or misstatement in the financial statement will influence the economic decision of the user.

in the given case, the amount by customer may not be individually material but collectively they are

2. Detection risk- this risk is from the auditor, when the auditor fails to detect an omission/misstatements/error/fraud

this risk is dependent on the control risk(how well the entity's internal control work) plus if the controls are good the reliability on the will be more and work of detection will be less and vice versa.