Objectives  1. Analysis of non-quantitative aspects of inherent risk in the audit  2. Analysis of quantitative aspects of inherent risk in the audit  3. Highlighting of specific areas of risk important to the Audit Plan This note discusses only areas of risk that require special attention during audit and it does not discuss the audit procedures in detail. Non-Quantitative Aspects of Inherent Risk Audit risk is concerned with the risk that the auditor may fail to express an appropriate opinion pertaining to any transaction or balance reported in the financial statements of the company audited. In the case of a financial audit report, the audit risk is that the auditor might give an unqualified opinion on financial statements where there are material misstatements (Kamal Gupta, 2005). Audit risk comprises inherent risk, control risk and detection risk. “Inherent risk is the auditor’s assessment of the susceptibility of an account balance or a class of transactions to misstatements that could be material (Kamal Gupta, 2005). There are various non-quantitative aspects, which need the consideration of the auditor in identifying and assessing the inherent risk in respect of the audit of the accounts of any client. While gathering an understanding of the industry, the auditor may have to consider the regulatory and other external factors, which have a bearing on the functioning of the firms in the industry. In addition, the auditor has to take into account the applicable financial reporting framework, nature of the firm, objectives and strategies and related business risks and measurement and review of the financial performance of the firm (Appendix1, 2006) Industry Environment Overall, retail industry is the largest in Australia employing about 15% of the total workforce. The easy availability of credit over the last decade has resulted in a boom for the retail industry in general, of which discount retail-like TRS is a segment. However, with the global economic slowdown, the Australian economy is also affected showing its impact on retail sales, which was very sluggish during the later part of 2008. During an economic recession when the consumers are trying to spend less, the discount stores are likely to do well since the consumers “trade down’ (Vault, 2008). Therefore, from the audit point of view, there may not be any significant reduction in the sale figure of TRS for the financial year ending 29 June 2008 due to economic recession. Nature of the Entity The Reject Shop Limited (TRS) is a budget variety general merchandise discount retailer. The company is a fast-growing one with 150 retail outlets spread over various parts of Australia. The company locates its stores in shopping centres, standalone sites, major regional centres and small country towns. Focusing on catering to the everyday needs of the customers, who are price conscious the company deals in household cleaning products, cosmetics, basic furniture and kitchenware. Customers are public. Competitors include other similar operators and major retail chain stores (Investsmart, 2008). TRS was founded in the year 1981 and the company is progressing in an orderly manner. This is an important positive non-quantitative aspect in favour of the company for