Auditing process Case Study Example | Topics and Well Written Essays - 2000 words

Auditing process - Case get ExampleThis type of try is known as engagement risk. The probabilities of different passing game or metamorphose that back be caused due to this type of risk can be a financial loss, loss of reputation, and ultimately leading to the downfall of the visit farm. Engagement risks can further be subdivided into three types of risks, that is to say 1) Clients business risks, 2) Auditors business risk and 3) Audit risk. In the cited effort of Aerospace Lighting Inc. (ALI) on that point are several analyze issues related to engagement risks. All those audit issues winding with ALI and its impact on the financial statements and the audit process have been discussed here. ALI is a Chicago based accompany which is conglomerate in the business of providing cabin lighting system to its clients in aerospace industry. There has been a change in ALIs business strategy and its external auditors. This study entails active the different business risks associa ted with ALI and the corresponding audit issues. Client Business Risks Business risk can be defined as the chance that a given company will make less profit than what has been anticipated or there is a possibility that the company will make a loss instead of profit. Several factors solve business risks, like cost of inputs, volume of sales, price per unit, government policies and so on and so forth. The validity of items in financial statements of a company can be evaluated by an auditor based on certain factors. They are knowledge of business risks associated with the business activities followed by the client, structure of the organization, internal and external environment of the business concern and the interactions between them (Bell et al. 1). Business risk methodology of audit process includes some of the pastime key points 1) Developing an agreement about the process of risk management in the organization. 2) Developing an understanding about the risks involved in the business of the organization. 3) The risks which are identified give an idea about its judge impact on the financial statements. 4) Assessment of the control system about how much efficiently it manages risk (Rittenberg 121-123). In ALIs case, various factors which have an impact on clients business risks can be subdivided into three headings, namely management, entity and industry. A review of the previous auditors report and views of the chief Financial Officer (CFO) are available and can be used as good audit evidence. CAS 620 relates to the decision of an auditor to use the work of an auditors expert. CAS 500 provides the necessary requirements and guidance to auditors regarding audit evidence. Consultant advice is also a good option in this case which is explained in CAS 220 (Financial Reporting & toast Standards Canada 1-8). Hence, regarding clients business risks, following evidences can be considered as being the business risks involved in ALI 1) Management Firstly, rega rding management of ALI, its integrity is the key. Certain evidence that ALI is not loyal to its parent German company named BmG can be inferred from the case. ALIs management is only concerned about the financial motion of the company. While achieving its financial target, ALI calls for a strategy involving rapid growth of the company. ALI is not concerned much about reporting BmG regarding the means adopted by them to achieve its target. Here lies the business risk in the bring out of ALIs management. There is a high probability that ALI can restore to unfair