Question

Textbook: Auditing Cases: An Interactive Learning Approach - 7th Edition by: Beasley, Buckless, Glover, Prawitt.

Case study: Oilfiedls-R-Us, Inc 5.8

Q: Based on the revised management review control (MRC) description provided in the Part B, What is

(a) the Control's purpose:

(b) Risk(s) of material misstatement addressed by the control:

(c) Significant account(s) related to the control:

Answer 1

A)Control is a function of management which helps to check errors in order to take corrective actions. This is done to minimize deviation from standards and ensure that the stated goals of the organization are achieved in a desired manner.

B)

material misstatement of revenue could trigger a decision to buy a company's stock, causing losses for the investor when the misstatement is later corrected and the price of the stock declines.

The risk of material misstatement is the risk that the financial statements of an organization have been misstated to a material degree. This risk is assessed by auditors at the following two levels:

At the assertion level. This is further subdivided into inherent risk and control risk.

• At the financial statement level. C)  Relates to the financial statements as a whole.C)Requirements from the Public Company Acccounting Oversight Board are causing auditors to require a level of precision and specificity for management review controls beyond prior years. Auditors are also reviewing far more documentation than they use to. At the same time, there is a lack of clarity on what exactly is sufficient in management review controls and how precise they need to be. This is troubling, since MRCs are crucial to the financial reporting process.