1. Opal Pty Ltd
a) Inherent risk should be assessed as high because there is a possibility of misappropriation of assets since the company processes large amounts of sales transactions in cash. This situation may lead to an increase in fraud risk because the person may steal the money, embezzling receipts, or using company’s assets for personal use. Moreover, Opal Pty Ltd claims that they already have strong policies and procedures in place to monitor their employees when handling and safeguarding the cash, but the proper implementation of those policies have brought the previous auditor into questioned. It means that the policies and procedures that they have been implemented may not be effective and it may indicates possible misstatement
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If the senior executives refuse to set up such a division, the company will probably have a weak and ineffective internal control. This will trigger fraud risk to occur because if the internal control is not operating effectively, there is a chance of fraudulent financial reporting such as manipulation of records or documents and omission of the effects of transactions from records or documents to happen. Although Neon is a proprietary company and it is not compulsory to have an internal audit division, it will be beneficial to the company itself to have an internal auditor to ensure that the internal, governance control and risk management are operating effectively. The fact that the company using bank loan for the last five years to open four new factories is likely to bring a possibility of going concern issue to arise as if the company is no longer profitable, they may not be able to pay the …show more content…
The impact of installing the new system affects major accounts such as cost of good sold, sales revenue, and inventory account. The auditor needs to perform more tests of details on major accounts of routine transactions (sales revenue, inventory). Audit procedures that should be undertaken to check for inventory account are observation of physical inventory and taking samples to verify cost of inventory. In order to perform observation, the auditor can conduct a combination of observation, inquiry, and physical examination (test counts). Besides, taking samples can be done by selecting purchases and vouching cost price back to supplier’s invoice or cost accounting records. The auditor may also check for subsequent sales prices and compare it with cost. The major issue of sales revenue is overstatement; therefore as an auditor, it is possible to perform vouching from entries in sales journal to supporting documents of sale (invoice or cheque). Another procedure is checking last sales invoice before balance date and first sales invoice recorded after balance date are recorded in the correct period. In addition, auditor may also perform less test of control for routine transactions (sales and inventory) such as taking samples of sales transactions in sales journal and review evidence that comparison with sales invoice undertaken and those prices
During the audit 213 sales transactions were examined to test revenue controls; 82 deviations were found and are as follows:
Accounts receivable balances are tested by sending confirmation letters to customers to obtain objective assurance that the balance is correct. The auditor also chooses sales transactions from the sales ledger and verifies that there are legitimate sales receipts to back up the transaction. To test the accuracy of the sales figure, the auditor reviews sales transactions in the ledger close to the financial statement date to ensure that the company only included sales prior to that date.” What Are the Audit Procedures for the Sales & Collection Cycle? (n.d.).
However, according to Agency theory, agent has the duty to act in the best interests of the principal, but in order to reduce the risk that managers might undertake risky decisions, boards should monitor and control the agent’s behavior. In addition, the risk are treated by internal audit as monitorial or manageable may not be documented and assessed, which is increasing the cost of company(Spira & Page, 2003).
Due to the lack of qualified and engaged auditors, Ventra Ionia needs to evaluate their current audit program. There are many structures the audit team can take. Does Ventra want to hire a few full-time employees whose only responsibility would be to audit the various processes within the factory? Does Ventra want to conduct an internal auditor training to develop current employees? Does Ventra want to create a partnership with other factories in the area or sister plants to create a co-sourcing or consortium arrangement? Does Ventra want to hire an outside company to conduct all internal audits and outsource the process? There are many options Ventra could choose. The following two options are suggestions Ventra could use to develop their internal audit program.
Assessing audit risk correctly and completely is important to the beginning of a successful audit. Not only should an auditor have an understanding of the individual risk factors of the company itself, but also how those risk factors are affected by external influences. A crucial external influence affecting audit risk is the state of the economy. When an economy enters a recession or an economy bubble bursts, there is a greater likelihood that inherent risk and control risk will increase. These increases are mainly driven by the sudden pressure placed on employees and management to keep the appearance of a positive financial status, which sometimes leads to fraudulent activity.
The element neon was discovered by Morris Travers and Sir William Ramsey. The chemists first isolated neon in 1898 by evaporating argon using low pressure. Neon was the third noble gas discovered by Ramsay and Travers, after argon and krypton. Neon has an atomic number of 10. The first neon lamp was produced by Georges Claude. Neon produces a reddish-orange color. Argon produces a faint purple. Neon most commonly used in advertising signs. Neon creates light through the application of electricity to neon in a glass tube.
Responsibility of express opinion of these financial controls and statements within its internal control of such reports. This firm conducted the audit in accordance with PCAOB standards of the United States, which require the plan and performance of an audit for reasonable assurance that those financial statements are both free of material misstatement and that effective controls are in place and maintained to eliminate those misstatements. Our audit of financial statements included examination and testing of internal controls, inventory, payroll, deposits and withdrawals, along with receipts and payments. These evaluation gave the audit team an understanding of the internal procedures and controls when dealing with financial controls and statements, gave the audit team a reasonable basis for our
Internal controls in inventory, accounts payable, accounts receivable and payroll are an important part of a company system. The four systems require efficiency and accuracy from the employees before accounting system can ensure expedient access to cash availability.
The analytical procedures is yet another way to detect the fraud. Through analytical procedures the relationship between different figures is develop that support the increase or decrease effect on the balance sheet and the income statement. The following procedures to be performed:
To counter this problem, computer assisted audit techniques have been developed. These systems are able to provide a more in depth analysis of the utilized billing systems. Computer assisted audit techniques also enable highly efficient assessment of transactions. By utilizing this system, an auditor could gain a clearer picture of the revenue reporting mechanisms that are being utilized by the business office. Once the information is derived, however, its interpretation, while simpler, will still require an individual that is knowledgeable in regard to the revenue cycle
Fraud risk factors in term of nature of control environment, the conversation reveals that no appropriate control is implemented to separate duties in the cash disbursements department. It indicates a condition that opportunities to carry out fraud are high in SCS. For instance, if custody of the signed cheques is not properly managed or controlled, fraud could happen by alterations being made to the cheques. Risk of fraud can be reduced if several employees are taking part in separate phases of a
The overall purpose of cost accounting is to advise top administration and the management team on the most suitable and cost effective methods and actions to employ based on cost, capability and efficiencies of a given product or service. It can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). Once these numbers are gathered and recorded the information is used to determine a selling price and/or to identify possible investment opportunities. Although the principal aim or function of cost accounting is to help the business administration with their decision making and business planning process, the cost accounting data
The major characters of the tradition audit are all information what is needed by auditors are on the paper and the manual calculators and without high communication technology. Auditors usually were limited by the place in the paper time. When a several people are working on the same auditing project for a client with offices in cities across the country, even worldwide, it takes a lots all time those auditors get the information which they need from the client, even there is risk paper information disappear for many reasons. on the another hand, mail paper information increase the auditing cost. The mistake caused by the manual calculators inevitably, no matter how fixed auditors concentrate on recalculate is, after all auditors are human. The global business become major in the modern business world, some example, several auditors who are in different locations are working a same auditing project, or auditors are in different city even country with the client, when there is issue among these auditors or between auditors and client, they only can communicate with each other by phone or be together and have meeting. Phone call can not make sure information been watched in the same time when the voice is talking about the issue, but having a meeting takes time and money make all people together, it increases auditing cost.
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.
The following essay aims to analyse in depth a computerised accounting system and its aspects such as its history, what technologies is based on, and how it has developed since its beginning. Other aspects such as the current state of the system and the interactions with other systems and the future of the system will also be covered in this paper.