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statement, the balance sheet, and the disclosures: transaction-level assertions, account balanceassertions, presentation and disclosure assertions. Willis & Adams are going to use a diversity ofassertions to perform the audit tests. The auditors will also contact EarthWear Clothiers’ seniormanagement to receive a written document of the management assertions stating that themanagement didn’t know about or nor was a part of any fraudulent actions. The management
ACC 645 – Final Project8assertions will also be helpful for determining whether all of the managers agree with thewarehouse expansion.Audit Risk“Audit risk is the risk that an auditor will not detect errors or fraud while examining thefinancial statements of a client. Auditors can increase the number of audit procedures to reducethe level of audit risk. Reducing audit risk to a modest level is a key part of the audit function,since the users of financial statements are relying upon the assurances of auditors when they readthe financial statements of an organization” (Bragg, 2018).Control risk, inherent risk, and detection risk are the three types of audit risk. Control riskis when material misstatements are not detected by the company’s controls. Inherent risk is whena company’s financial statements are ductile to material misstatements. Detection risk is whenthe audit procedures the are being used are not able to detect the material misstatements. Willis & Adams will perform tests over the risks that EarthWear Clothiers is facing toevaluate the risk and if needed to lower it. This way the auditors will determine whether there isany fraud and if the company is materially misstating accounts. Internal ControlsEarthWear Clothiers is responsible for the accurate recording of transactions and financialactivities and for the accuracy of their financial statements. While performing the audit, Willis &Adams will test the internal controls of EarthWear Clothiers. For this purpose, the auditors will
ACC 645 – Final Project9perform test for evaluating the effectiveness of internal controls, test the warehouse recordings toconfirm whether all the products were accounted for, observe inventory records, checkoutstanding warehouse receipts. In order for Willis & Adams to determine the effectiveness ofthe operations of control, the auditors will perform a physical count and will observe theoperational procedures and activities at selected locations of warehouse. After fulfilling these testand evaluations of EarthWear Clothiers, Willis & Adams will gain better understanding of theirinternal controls and will make any recommendations or comments if needed. Effect on Audit ProceduresThe CPAs at Willis & Adams will conduct test and procedures to assess the risk and togain better understanding of EarthWear Clothiers. Willis & Adams will be making inquiriesabout the internal controls of their client. This will help the auditors determine whether there