Industry and Corporate Risk :: essays research papers

IntroductionOrganizations today face several business endangerments that puke defy an effect on their financial statements. The scrutinise take a chance model is a tool that auditors use to help identify those lucks. To better understand how the audit risk model can help identify risks, we will testify how the model can be employ to the Coca-Cola Corporation and the limitations of using the model.Components of the manakinThe audit risk model is composed of the equation, audit risk (AR) equals constitutional risk (IR) times control risk (CR) times detection risk (DR). Audit risk is the risk that the auditor may fail to characterise their opinion on misstatements in the financial statements. Inherent risk is the risk of an assertion being made on material misstatements, assuming that in that location is no problem with related internal controls. Control risk is the risk that material misstatements could occur in an assertion that are not notice or prevented by the existin g internal controls. Detection risk is the risk that the auditor will not detect a material misstatement in the assertion (Messier, 2003, pg. 94). In the process of assessing the auditee risk, the auditor must determine the entitys business risk. This can be done by evaluating the nature of the entity, industry, regulatory, and different external factors, management, governance, objective and strategies, measurement and performance, and business processes (Messier, 2003, pg. 98).Examples of possible business risks can be found in the Coca-Cola Corporation. Coca-Cola faces different regulatory practices since it has operations in countries outside of the United States. These operations include North America, Africa, Asia, Europe, Eurasia, and Middle East, and Latin America. Another business risk for Coca-Cola is that the nature of the business can be seasonal. The demand for the product can fluctuate from one location to some other and may fluctuate over time within a individual l ocation. Coca-Cola also acquired ownership or licensing rights to products in Croatia, Argentina, Mexico, and Bahrain in 2004, which create bare-ass business risks. The company also uses two different units of measurement to var. sales. The measurements are gallons and cases of finished products. The difference in measurement can beget errors in measurement, therefore possibly creating another business risk (Coca-Cola, bunt 4, 2005, pg. 2, 4).Applying the ModelThe use of the audit risk model should be applied at the account balance or class of transaction aim. in that respect are three steps to applying the model, the steps include setting a planned level of audit risk, determining inherent and control risk, and declaration the risk equation in order to determine the appropriate level of detection risk (Messier, 2003, pg.