Question

Jupiter Mining Ore Limited is a major mining and exploration firm with operations in multiple galaxies. The company is looking to further expand its operations those solely within its core operations. The company’s total assets exceed $100 billion, liabilities of $45 billion, and annual sales close to $200 billion. The preferred auditor is Bad Eyesight Auditors.

Required: Consider the following scenarios independently to determine the type of risk, level of risk and extent of audit work that may be necessary:

Scenario	Type of Risk	Level of Risk	Expected Level of Audit Work	Justification
Regulators have recently changed the method and requirements for estimating mining ore sales. The new requirements needed Jupiter Mining Ore Limited to recode significant areas of its electronic recording system. The new requirements, however, did not require additional training of existing accounting staff.
High profile protests have erupted over the last year against unethical mining practices. To date the protests have centred predominantly on the operations of competitors of Jupiter Mining Ore Limited. Many planetary governments, in response to the protests have begun to introduce major reforms whilst many customers have indicated a strong desire to find alternatives.
Due to changes in mining regulations and rules governing accounting for mining operations, Jupiter Mining Ore Limited had to significantly change the role and responsibilities of its internal audit teams, and internal audit processes during last year with some issues still unresolved.

Scenario	Type of Risk	Level of Risk	Expected Level of Audit Work	Justification
Jupiter Mining Ore Limited opened a new mining operation in on Morag, a planet in the Rings Galaxy. The new operations will account for 10% of the firm’s operations for the year. Being in a distant galaxy the company had to hire local staff. Unfortunately, few in the galaxy have accounting experience. Only one senior accountant accepted the offer to transfer to the Rings Galaxy to train new staff.
Mining operations require major capital expenditure; thus, there are major barriers to entry. Hence, many mining operations are mature firms with constant relationships. Sales transactions require substantial estimations and involve the use of complex financial instruments. The great number and magnitude of sales by Jupiter Mining Ore Limited are a further complicating factor.
The new changes to the method and requirements for estimating mining ore sales required Bad Eyesight Audits to redesign and recode auditing software used in the audit evidence gathering and evaluation process of mining sales. It also required audit team members to undergo new training and certification in understanding mining sales.

Answer 1

Scenerio 1.

Type of risk -

Inherent Risks:

Inherent risk refers to the risk that could not be protected or detected by the entity’s internal control. This risk could happen as a result of the complexity of the client’s nature of business or transactions.

Sometime, that nature of business could link to the complexity of financial transactions and require high involvement with judgment.

The risk is normally high if the transaction or even involve highly with human judgment. For example, the exposure in the complex derivative instrument.

This kind of risk could also be affected by the external environment

Level of risk - High

Due to changes in mining regulations and rules governing accounting for mining operations, Jupiter Mining Ore Limited had to significantly change the role and responsibilities of its internal audit teams, and internal audit processes during last year with some issues still unresolved.

Expected level of audit work -

Rely on control and perofrm moderate level of substantive tests.

Scenerio 2.

Control Risks:

Control risk or internal control risk is the risk that current internal control could not detect or fail to protect significant error or misstatement in the financial statements.

Basically, management is required to set up and assess the effectiveness and efficiency of internal control over financial reporting to make sure that financial statements are free from material misstatements.

Level of risk - Moderate

As the company is looking into how to complete the new accounting system and appointing a accounatant on that .