Question 1(a): Factors that Would Affect Preliminary Assessment of Inherent and Control Risk at Queen Island Dairy Some of the factors that would affect the firm’ s preliminary assessment of inherent risk include; first, it should be understood that cheese is a perishable commodity, which indicates that there is a higher risk of wastage hence a likelihood of negatively affecting the inventories of the firm altogether (Inherent Limitations, 2004). Second, in regards to the sales resulting from tourism activities at both the shop and café , there is a higher risk that would emanate from the fluctuating levels of demands for the product at hand.
Third, it is established that the business engages in intense export sales that postulate complicated foreign exchange activities, which poses a greater incorrect pricing risk given that the transactions are complicated in nature. Subsequently, the process of engaging in foreign exchange transactions by the firm might pose a challenge in regards to risk assessment strategies employed at any given time (Inherent Limitations, 2004). Fourth, there is a likelihood of competing for incentives that emanate from export sales as well as café consulting business activities.
Fifth, Queen Island Diary cheese operations require highly skilled personnel that are able to engage in the skilled processing activities of the firm altogether. Sixth, the fact that firm survival depends on intensive exports poses a vulnerability risk to this fundamental revenue-generating activity. On the other hand, factors that would affect the preliminary assessment of control risk for the business include; first, there is imminent risk relating to commodity spoilage that would likely affect the immediate value of inventories. Cheese inventories are sensitive to the manufacturing and handling process hence it is important that the level of spoilage is reduced to a minimum amount in order to avoid possible future losses due to insufficient inventories of poor inventories for that matter (Inherent Limitations, 2004).
Second, there are poor controls of sales mechanisms that are affected by Jim and his immediate brother Bob as well as other staff members within the facility. For instance, it is ascertained that Jim Bannock is poor at completing detailed paperwork, engages in poor export deals documentation and also, he incorrectly makes adjustments to debtor accounts using credit notes.
Third, it is ascertained that the quality control of the business is highly positioned, however; the degree of effectiveness in regards to quality control over cheese product operations is poorly managed hence negatively affecting the level of sales attributed to the product at hand (Inherent Limitations, 2004). This is basically attributed to the fact that spoilage levels have not been minimized at all in the course of product handling. Fourth, it is established that there is a lack of effective communication between Jim and Bob in matters related to applying different processes to different customers.
This lack of communication between the two brothers and the entire staff at large is likely to affect the management practices of the entire company as a whole (Inherent Limitations, 2004). Question 1(b) It is important to realize that the lowly placed assessment level of control risk technique is considered to be appropriate whenever it is ascertained that the level of control risk is postulated as being low (Mongelluzzo, 2001). On the other hand, a predominantly substantive technique is considered to be vehemently appropriate and effective for that matter whenever the level of control of risk is postulated as being higher.
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