You are an auditor on the Arimba Limited (Arimba) engagement for the financial year ending 31 December 2018. Arimba is a large Australian media and...

You are an auditor on the Arimba Limited (Arimba) engagement for the financial year ending 31 December 2018. Arimba is a large Australian media and advertising company. This is the first year that your firm is auditing Arimba. You are currently planning the Arimba audit and have noted the following information:

 A large portion of Arimba's revenue is derived from advertising services, which consists of fees and incentive-based revenue or a combination of these, as agreed upon with each client. Revenue is recognised when the service is performed, in accordance with the terms of the contractual agreement. Incentive-based revenue typically comprises both quantitative and qualitative elements. Revenue from the quantitative element is recognised when the quantitative targets have been achieved, while revenue recognition from the qualitative element is recorded when it is received (or receivable).

 The most significant (intangible) asset on Arimba's Statement of Financial Position is Television Licences, with a carrying value in the draft financial report of $919m (2017: $952m). These licences are issued by the Australian Communications and Media Authority (ACMA) and permit the transmission of television programs to the public over specific broadcasting services bands. Following initial recognition (at cost), Arimba carries intangible assets at cost less amortisation and any impairment losses. Your review of the industry suggests that free to air television viewership is declining as a result of changes in consumer viewing habits following the growth of alternative digital viewing platforms (e.g. Netflix).

 Arimba received notification from ACMA in October 2018 that it had commenced investigation under the Broadcasting Services Act 1992 following complaints received in relation to the airing of a commercial related to gambling that was misleading and deceptive to the audience and which was broadcast several times during a live sporting event. If found to have breached the Commercial Television Industry Code of Practice 2015, Arimba may be liable for a significant financial penalty. Arimba's management have not recorded any provision in respect of this event as they are confident that the commercial in question was clearly depicted as a gambling advertisement and therefore would not be considered to lead ordinary, reasonable viewers into erroneously believing they were watching a genuine news report.

REQUIRED:

Based on the information above, describe three (3) significant audit risks which might result in material misstatements in Arimba's financial report for the period ending 31 December 2018. For each risk, indicate the key account and primary assertion at risk, and provide a specific and practical substantive test of detail to gather audit evidence in respect of the identified risk.

For each of the three (3) risks, marks will be allocated as follows:

(i) Explanation of audit risk

(ii) Key account affected

(iii) Primary assertion at risk

(iv) Substantive test of detail