1.

Computer Fraud Risk

 Risk Level: Medium
 Impact on Audit Risk Model:
o Inherent Risk (IR): Medium. The risk of computer fraud increases the inherent risk as it suggests
vulnerability in the system that could lead to material misstatements.
o Control Risk (CR): Medium. The effectiveness of controls over the new computer system will
determine control risk. Weak controls could increase the risk of fraud.
o Detection Risk (DR): Medium. The auditor's ability to detect computer fraud depends on the
effectiveness of detection procedures.
o Audit Risk (AR): Overall audit risk is elevated due to the combination of medium inherent risk,
control risk, and detection risk associated with computer fraud.

2. Risk Related to Management Override of Internal Control

 Risk Level: High
 Impact on Audit Risk Model:
o Inherent Risk (IR): High. Management's ability to override controls indicates a high inherent risk
of intentional misstatements. The risk of intentional misstatements is elevated.
o Control Risk (CR): High. The likelihood of management overriding internal controls is high,
given the CEO's control over the board. This substantially increases control risk.
o Detection Risk (DR): Medium. Detecting management override requires careful audit
procedures, contributing to a medium detection risk. If these procedures are not effectively
implemented, detection risk is moderate.
o Audit Risk (AR): Overall audit risk is high due to the combination of high inherent risk, control
risk, and medium detection risk associated with management override.

3. Fraud by Branch Management

 Risk Level: Medium to High
 Impact on Audit Risk Model:
o Inherent Risk (IR): Medium to High. If there are incentives for branch management to
manipulate numbers, it increases the inherent risk. High if there are strong incentives for
manipulation.
o Control Risk (CR): Medium. Depending on the effectiveness of controls in place, control risk
may vary. If controls are not strong, the risk of misstatements due to fraud is medium.
o Detection Risk (DR): Medium. Detecting fraudulent activities at the branch level requires
effective audit procedures. If these procedures are not well-designed, detection risk is moderate.
o Audit Risk (AR): Overall audit risk is influenced by a combination of high to medium inherent
risk, medium control risk, and medium detection risk associated with fraud by branch
management.

4. Fraud by Accounting Personnel

 Risk Level: Medium
 Impact on Audit Risk Model:
o Inherent Risk (IR): Medium. Despite little turnover, consistent underestimation of loan loss
allowances raises concerns, contributing to medium inherent risk.
o Control Risk (CR): Medium. The effectiveness of controls in preventing fraudulent activities by
accounting personnel influences control risk. If controls are not robust, the risk of misstatements
due to fraud is medium.
o Detection Risk (DR): Medium. Effective detection procedures are necessary to identify potential
fraud by accounting personnel. If these procedures are not well-designed, detection risk is
moderate.
o Audit Risk (AR): Overall audit risk is influenced by a combination of medium inherent risk,
medium control risk, and medium detection risk associated with fraud by accounting personnel.

5. Misstatement of Accounting Estimates

 Risk Level: Medium
 Impact on Audit Risk Model:
o Inherent Risk (IR): Medium. The consistent underestimation of the allowance for loan losses
indicates a medium inherent risk related to accounting estimates.
o Control Risk (CR): Medium. The accuracy of accounting estimates depends on the effectiveness
of controls. If controls are not strong, the risk of misstatements due to inaccurate estimates is
medium.
 o Detection Risk (DR): Medium. Detecting misstatements in accounting estimates requires careful
audit procedures. If these procedures are not well-designed, detection risk is moderate.
o Audit Risk (AR): Overall audit risk is influenced by a combination of medium inherent risk,
medium control risk, and medium detection risk associated with misstatements of accounting
estimates.

6. Fraud by Loan Processing Clerks

 Risk Level: Low to Medium
 Impact on Audit Risk Model:
o Inherent Risk (IR): Low to Medium. The risk is relatively lower compared to others, given the
overall context. However, any fraud by loan processing clerks could impact the accuracy of
financial transactions, contributing to a moderate level of inherent risk.
o Control Risk (CR): Low to Medium. The effectiveness of controls in preventing fraudulent
activities by loan processing clerks will influence control risk. If controls are not robust, the risk
of misstatements due to fraud is moderate.
o Detection Risk (DR): Medium. Detecting fraud by loan processing clerks requires effective audit
procedures. If these procedures are not well-designed, detection risk is moderate.
o Audit Risk (AR): Overall audit risk is influenced by a combination of low to medium inherent
risk, low to medium control risk, and medium detection risk associated with fraud by loan
processing clerks.

7. Fraud by Internal Auditors

 Risk Level: Low to Medium
 Impact on Audit Risk Model:
o Inherent Risk (IR): Low to Medium. The close relationship between the chairman of the audit
committee and the internal auditor may introduce a potential risk, though at a lower level. The
inherent risk is low to medium.
o Control Risk (CR): Low to Medium. The effectiveness of controls over the internal audit
function will influence control risk. If controls are not robust, the risk of misstatements due to
fraudulent activities is moderate.
o Detection Risk (DR): Medium. Detecting fraud by internal auditors requires effective audit
procedures. If these procedures are not well-designed, detection risk is moderate.
o Audit Risk (AR): Overall audit risk is influenced by a combination of low to medium inherent
risk, low to medium control risk, and medium detection risk associated with fraud by internal
auditors.

8. The Risk of Fraudulent Misstatement of Revenues

 Risk Level: Medium to High
 Impact on Audit Risk Model:
o Inherent Risk (IR): Medium to High. Depending on the accuracy of revenue recognition, the
inherent risk could be medium to high. The bank's reliance on mortgage sales and the potential
for aggressive revenue recognition practices increase the inherent risk.
o Control Risk (CR): Medium to High. The effectiveness of controls over revenue recognition will
influence control risk. If controls are not robust, the risk of misstatements due to fraudulent
revenue recognition is high.
o Detection Risk (DR): Medium. Detecting fraudulent misstatement of revenues requires effective
audit procedures. If these procedures are not well-designed, detection risk is moderate.
o Audit Risk (AR): Overall audit risk is influenced by a combination of medium to high inherent
risk, medium to high control risk, and medium detection risk associated with the risk of
fraudulent misstatement of revenues.