 In this presentation, we will discuss inherent risk and control risk as it relates to the purchasing process. So you'll recall we're in the auditing strategy. We're considering the purchasing process. We've gone through that purchasing process. Now we want to consider those risk factors. So recall that we want to consider within the auditing process the inherent risk, the control risk, and then use that to determine what we should set the detection risk to be that then determining what we want to put in terms of substantive testing or how much or how many substantive testings need to be put in place. So we'll recall then that when we think of inherent risk, we're thinking of those risks that are inherent to the organization. You want to think about it in this format in the inherent risk. When we're thinking about inherent risk, we're trying to remove the internal controls and just say, what is the inherent risk or how inherently risky is this process without the internal controls? That's just the inherent risk of the business model, the business setting, the standard functions that are going to be in place just within the process. So we want to think about whether the inherent risk is great or small. Then we think about the control risks. Those are the risks. Those are the things, the controls that the management, the company put in place to safeguard against those inherent risks. Those inherent risks the company is worried about that will be problems to the company, which we are worried about as auditors because they're going to affect whether or not the financial statements have been reported properly because if there is a problem in these areas, there's probably even either an error or some type of fraud possibly that which could make the financial statements not be reported well. So what we want to do then is think and look at the inherent risk, take a look at the control risk, then use that to see how much what we want to set detection risk to be and then think about how much substantive testing we want to do of this process. So inherent risk assessment industry related factors will include is supply of raw materials adequate? So notice that different industries might have different basically supply requirements for the raw materials. So if we're creating something, if we're creating say inventory, we might have a question about what the raw materials are and whether or not they're going to be basically out of it. Are they there? Are they something that we are able to get? In other words, if we only have a few suppliers, a few vendors of particular items that we need, that could be a problem within the purchasing cycle. If we have a lot of different vendors, if one vendor goes down and we could purchase from a lot of different vendors, then we don't have as much of a problem. For example, if we needed to purchase like a precious metal or something like that to go into our purchasing process and there's only one company that has that precious metal, then that's more inherently risky to the to the organization than if we're purchasing something that's fairly common like water or something like that. And you say, well, if one company goes down, that's who we mainly purchase from our water, but we could probably go somewhere else wouldn't have much of a difficulty there. So that's one kind of inherent risk factor with regards to the purchasing process. Who do we purchase from and how specialized is that purchasing? How volatile are raw materials prices? So obviously, when we think about our purchasing process, when we think about making inventory, we're thinking about what's going to be our profit margin. And we want to make sure if we have a type of material that's going to vary a lot in terms of the costs of the material, that could be making it difficult for our purchasing process that could cause problems, of course, making our purchasing process more inherently risky. If we're looking at types of raw materials that are fairly stable in terms of price, that's probably going to make our purchasing process less risky and more easy for us to manage through. If I could be very certain about what the estimated price will be, it's pretty constant throughout the whole process of our primary purchasing items. That makes it a lot easier for me to put in a process and for me to test it as well. If the price is very volatile, then it's a lot more difficult for us to put in a process that's going to make sure to safeguard against any errors that could happen because they're not going to be as easily detectable given the fact of the volatility and the price of the things we're looking at. So misstatement fraud in prior audits is also going to be an inherent type risk factor just part of the business that we are in. The purchase process is not usually difficult to audit and does not present continuous auditing issues. So in other words, this isn't a place that we would often expect that we would have a problem within the auditing process. However, the auditor's past experience in audits needs to be considered when assessing inherent risk. So we want to say what happened last year? What happened last time? If this is a continuing client like it normally is for most type of clients, then we could consider what happened last time and factor that in. We'll factor that in where in our formula and the inherent risk type of calculation. Then we have the purchase process internal controls. Now we want to consider what the internal controls are. Remember that these are set up by management, but there's something that we are going to rely on in the audit to some degree. And whether or not we rely on it or the degree at which we rely on it will depend on and determine help us to determine how much substantive testing we will then do. So primary steps in setting control risks for the purchasing process will include understand and document the purchasing process using a reliance strategy. So we're going to document, you know, the process that they go through plan and perform tests of control on the purchasing transactions. So we want to say, Hey, what's your purchasing process? Then we want to test the controls recall that we're going to do tests of controls because we're hoping to come up to a conclusion that we can rely on controls and testing the controls testing the checks and balances should take a lot less work in most cases than doing