Toshiba Audit Risk Analysis Paper
The auditor must assess client risk and perform audit planning after accepting client engagement. The assessment includes understanding the client, identifying factors impact the risk of a material misstatement, performing a risk and materiality assessment and developing an audit strategy (Moroney, Campbell, & Hamilton, 2014). This essay will discuss what the inherent risk and the control risk are and the impacts in planning materiality of Toshiba considering financial and non-financial information.
B. The inherent risk and the control risk relevant to Toshiba
The inherent risk in Toshiba
Inherent risk is the possibility of occurrence of material incorrect information if ignoring company’s internal control (Moroney et al., 2014). Below are three inherent risks relevant to Toshiba:
1. Risk related to business
Toshiba is one of Japan largest manufacturer company in energy and infrastructure, healthcare systems, and electronics segments requiring highly advanced technology to produce innovative and attractive products (Toshiba, 2015). However rapid changes of technology along with evolving market preference …show more content…
Inappropriate accounting issues happened in 2015 done by top management overstating company’s earnings by 15.8 billion yen (US$1.2 billion) over seven years since 2008 (Chambers, 2015), forcing Toshiba to perform a financial restatement for the year ended 2008 until 2014 and reforming its corporate governance (Toshiba, 2015). Moroney et al. (2014) revealed that fraud affects auditor judgements in determining the level of significant of audit risk. Likewise, it is argued that auditors tend to release more severe audit opinion when there are more risks inherent like the financial restatements (Qiang, Nanwei, & Gang,