QUESTION 1 CCSU, CPA , is considering audit risk at the financial statement level in planning...

QUESTION 1

CCSU, CPA , is considering audit risk at the financial statement level in planning the audit of Devil Company’s financial statement for the year ended December 31, Year 1. Devil is a privately owned entity that contracts with outside companies to provide facilities management services for professional offices. Based only on the information indicated, determine whether each of the identified factors would most likely increase, decrease, or have no effect on the Risk of material misstatement (RMM).

- A. B. C.	An initial public offering of Devil’s stock is planned for late Year 2.
- A. B. C.	This was the first time if 5 years Devil operated at a profit because on of its current clients relocated its corporate headquarters to a large local facility, providing a significant increase in revenue.
- A. B. C.	The internal auditor reports to the controller and the controller reports to Ava, the majority stockholder, who also acts as a chief executive officer.
- A. B. C.	The accounting department has experienced a high rate of turnover of key personnel.

Expert Solution

An initial public offering of Devil’s stock is planned for late Year 2.

Impact: Increase as during the IPO Process there is diversification of funds which can lead to risk of material misstatement

This was the first time if 5 years Devil operated at a profit because on of its current clients relocated its corporate headquarters to a large local facility, providing a significant increase in revenue.

Impact: Increase as there is significant increase in revenue which could have not been reported in earlier years.

The internal auditor reports to the controller and the controller reports to Ava, the majority stockholder, who also acts as a chief executive officer.

Impact: Increase as the internal auditor reports controller and the controller reports to Ava, the majority stockholder, who also acts as a chief executive officer, there are chances that no action is taken on any identified risks.

The accounting department has experienced a high rate of turnover of key personnel.

Impact: Increase as any employee who identifies any risk is removed from job.

ekkarill92 answered 1 year ago

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