Case Study: Risk Assessment

Assessment Type: Written Case Analysis

Topic: Risk Assessment

Company: Outback Retail Ltd

Assessment Weight: 10 Marks

Case Background

Outback Retail Ltd is a mid-sized Australian retailer specializing in outdoor gear. It operates 22 physical stores across WA, SA, and NT, and has recently expanded its e-commerce platform. The company is audited by Western Auditors Pty Ltd for the year ending 30 June 2025.

Recent Developments:

• A new ERP system was implemented in February 2025, integrating inventory, sales, and finance.
• The company launched a “Buy Now, Pay Later” (BNPL) scheme in partnership with a fintech startup.
• A cyberattack in April 2025 led to temporary data loss in inventory records.
• The CFO resigned in May 2025 amid internal investigations into aggressive revenue recognition practices.
• The board is considering an IPO in early 2026.

Financial Highlights:

• Revenue increased by 38% YoY, with 60% from online sales.
• Inventory turnover dropped from 4.2 to 2.9.
• Gross margin improved from 48% to 52%.
• Trade receivables increased by 70%, with 25% past due >90 days.
• Significant increase in deferred revenue from BNPL transactions.

Assessment Questions

Students must answer the following questions. Responses should be analytical, not descriptive.

Question 1: Audit Risk Identification (4 marks)

Identify and explain three distinct audit risks arising from the case. Each risk must relate to a different domain:

• Financial Reporting Risk
• Technology/Operational Risk
• Governance/Strategic Risk

For each risk:

• Describe the nature of the risk and its relevance to the audit.
• Identify the financial statement assertions most affected.
• Discuss how the risk could lead to material misstatement.

Question 2: Audit Strategy Implications (3 marks)

For each risk identified in Question 1:- Explain how the risk affects your audit planning and procedures.

• Discuss whether it increases inherent risk, control risk, or detection risk.
• Suggest how audit resources or timing should be adjusted in response.

Question 3: Substantive Testing Design (3 mark)

Design one tailored substantive procedure for each risk that directly addresses the relevant assertion and audit objective. Justify your choice.

Submission Format

• Typed document (Word)
• Maximum 1,000 words
• Referencing required (any sources used)

Marking Criteria

Auditing Risk Assessment – Assessment Rubric

This rubric outlines the marking criteria for the auditing case study assessment worth 10 marks.

• Criteria 1: Risk Identification (4 marks)
• Demonstrates depth and relevance in identifying three distinct audit risks.
• Clearly explains the nature, significance, and affected assertions for each risk.
• Shows understanding of financial reporting, operational, and governance risks.
• Criteria 2: Audit Strategy Impact (3 marks)
• Explains how each risk affects audit planning and procedures.
• Correctly identifies the type of risk (inherent, control, detection).
• Provides logical adjustments to audit strategy and resource allocation.
• Criteria 3: Substantive Procedures (3 mark)
• Recommends appropriate and tailored substantive procedures for each risk.
• Justifies the relevance of each procedure to the audit objective.

Total: 10 Marks