[hav2pass]

Another one from my practice exam.

1. Does sales concentrated in one state increase risk?

2. To further protect Aquatic Jet’s bottom line, the board of directors has become more involved in operations. Does it affect risk?

BEC 86 (expires Sept'11)
FAR 85
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[Anonymous]

What type of risk? Business risk? Audit risk?

Both shouldn't affect audit risk– but I suppose there could be a case for #2 to affect control risk (Up or down depending on how well they do their job…)

Business risk in my opinion is objective and wouldn't really be asked about…

[peteymit]

Those are interesting.

1. I think it has little or no effect on risk, other than to make it a little more difficult to confirm PO amounts if needed.

2. I think the “bottom line” talk may be trying to tell you that the board itself may be trying to a little too hard. Which would increase the risk of fraudulent reporting. On the other hand, one of the seven control environment factors is board involvement.

[hav2pass]

@DisorientedCPA : Thanks for answering. The title thread says factors affecting RMM.

1. On a broad level, I know it doesn't affect RMM but was just wondering if it affected inherent risk for sales. B'cos they r depended upon the local area. But I agree we don't have to go that deep in business risk to understand inherent risk here.

2. If the Q were just abt the BOD getting involved in operations, sure thing it reduced control risk but wun't increase it. Only the words abt their concern with profitability threw me. I wasn't sure whether they r trying to increase pressures on mgmt to improve profitability. Glad another person thinks it may increase RMM.

Inspite, if both these topics came in a real exam, for both items I would put doesn't increase RMM.

BEC 86 (expires Sept'11)
FAR 85
REG 87
AUD 8/27 - waiting

[Author]

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