Components of the Audit-Risk model on Health Operation Chemists Shops in Perth

Components of the Audit-Risk model on Health Operation Chemists Shops in Perth


Health operates chemist shops in Perth. A large proportion of the sales transactions are 
conducted in cash. Health claims on having strong control policies and procedures in place to 
monitor the employees handling cash transactions and safeguarding the cash. However, the 
proper implementation of those policies had been questioned by the previous auditor. As Health 
is planning to expand to Mandurah and Busselton, it is applying for a bank loan to obtain 
additional funding for the expansion. Before approving the loan, the bank requires Health to 
provide them with an audited financial statement. The unaudited figures of current year suggest 
Health’s revenue to have increased significantly by 25 percent from last year while the gross 
profit appears to have increased marginally by 5 percent. 
News has been in the paper manufacturing business for the last 17 years. It manufactures and 
distributes paper throughout the Australian continent. During the last five years, News opened 
four new factories in three different locations, financed mainly from bank loans. Due to rapid 
growth in the company, the financial director John Brown is keen to set up an internal audit 
department. Currently the project appears to have stalled, as some of the senior executives do 
not foresee the benefit of setting up such a department and are unwilling to commit any 
additional fund or resources on this plan. The senior executives argue that they are competent 
enough to monitor the internal controls of News. 


From the above two scenarios please (250 words for each scenario) 
(a) Identify and discuss the risks that may arise from each of the above scenarios. In your 
explanation, please mention the components of the audit risk model affected. 
(b) Identify how the audit plan will be affected and recommend specific audit procedures 
to address these risks.