Accounting Scandal - Barings

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- Risky for the auditor, they might could not detect material misstatement due to the nature of business

- They auditor cannot do anything about it

- Theoretically, when inherent risk is higher, it is assumed that auditors are aware of material misstatement

Auditor will take additional effort to plan their audits and audit procedures

Theoretically, the theory of audit

Collect evidences

Control Risk:

IC is insufficient or weak for internal auditor

- Risk of auditor not able to identify material misstatement because of poor internal control system, which not function properly

- If there is any fraud, auditor may not be able to cover it

- Theoretically understood that when the control risk is high, the auditor would put in additional effort to collect more evidence to ensure that their reports are not wrong

When inherent risk and control risk are high, theoretically, detection risk would technically be lower (because you will be taking of your audit planning and procedures very high, so ur opinion does not go on).

- How could the audit planning and procedures mitigate the risk?

- Important to maintain bank reputation, profitability; their risk-taking activity (high inherent risk; risky client)

- Should have done test of control; the internal control system is not working (high control risk); the moment they know the i/c is weak, should depends on independent parties (own working papers etc. gearing ratio high); self assessment, have sufficient resources (sufficient competent people and sufficient time); if don’t have, should step down from the audit; prior taking the audit commitment, should have communicate with the internal auditors; no particular question was asked and only rely on info given by Bearing staff (not objective, no questionable mind); discussion with auditors from main branch could have help