Audit Control And Planning: Risk Management And Internal Control Mechanisms

Account

Evaluation

Audit risks

Audit steps to minimize the risks

Investments

The times income attained from the investments has declined when compared to the past tenure.

In relation to investment, the audit risk is that the same may be undervalued or there may be a material misstatement whilst recording their value because their interest has declined over the years.

The auditor must scrutinize the reason for a decline in the earned interest.

Nevertheless, these investments must be tested in relation to their disposal. In case, the same has been disposed off and therefore, such documentation must be verified for the disposal transaction like receipts, broker contract note, etc.

Further, the receipts from investments sale must be clearly scrutinized by the auditor  (Livne, 2015).

Marketing cost

Marketing expenses has enhanced when compared to the past two years. This may be an outcome of the exaggerated exposure of the organization towards the beef segment.

In relation to marketing cost, the major audit risk is that the same also comprise of directors’ personal expenses and other disallowed costs (Lapsley, 2012). This can be presumed owing to the reason that the fraction of enhancement in marketing costs does not align with the proportionate enhancement in sales or current year’s returns when compared to the past years.

The team of auditors must scrutinize every document of marketing cost. Furthermore, the supporting documents must be verified as well.

Besides, the auditor must see whether such documents were approved by management authorities or not.

The costs bill of personal nature or insignificant in marketing costs that must be of a significant value, and the same must be noted by the auditors.

Property assets

Return on property assets has depicted the following variations:

In relation to production of beef, ROA (return on assets) has depicted a significant enhancement that comes to 1.67% in the year 2018. Besides, the same was -0.82% in the year 2017, and -3.45% in the year respectively.

In contrast to this, ROA in the case of production of wine and grape has declined when compared to the past year.

The risk of audit in relation to property assets is that the organization must have exaggerated the beef sales to depict an effective financial situation. However, in the past two years, the company has been attaining negative returns in such segment (Matthew, 2015).

The auditor must scrutinize the revenues and sales of beef segments to verify the cause behind the immediate enhancement in the returns for production of beef.

The ledgers of sales must be scrutinized with the sales order register for the attained orders (Baldwin, 2010).

As a partner audit, the return percentage of company and its aspects must be verified so that the figures ascertained can be verified and, in this manner, the team of audit can arrive at the efficacy of the computation too (Matthew, 2015).

The mechanisms of internal control associated to returns and sales must be scrutinized. This ensures the auditors whether effective identification of sales and revenue has been conducted by the organization.

Accounts receivable

The number of days of debt collection has enhanced significantly in 2018 when compared to 2017.

The uncollectible or bad debts can depict a false reflection of the organization’s performance. The debtors’ aging can be misguided by the organization too.

The debtors’ aging register must be checked by the auditors. Further, bad debts must be scrutinized with bad debts allowances as approved by the management (Kaplan & William, 2013).

Effective Control

Risk alleviated

Test of Control

The company has adopted an effective and automatic system of Information Technology within its framework that includes strict protection in the form of passwords to facilitate in the accessibility of programs.

Even though there is an information technology framework within the framework of the company, yet the same has not been efficiently handled or supervises by a professional who is experienced in the IT field. Besides, the company has assigned such job to the management accountant who clearly does not possess any type of experience and professionalism in the IT segment, and the same can result in the creation or generation of various material risks or errors (Geoffrey et. al, 2016).

In addition, there is no presence of password access for the IT bae that pose a major threat to the overall operations.

In relation to the test of control, it is liable for the company to hire an expert or professional who can primarily engage in such work with efficacy in the overall work process. In addition to this, the company must also hire an extra management personnel who can engage himself in the verification of IT information in coordination with the management accountant. The reason behind this can be attributed to the fact that this can facilitate in detection of errors timely and pave a path for corrective actions.

Furthermore, the database must be safeguarded through a proper password and the information of IT must be verified manually with the available documents to facilitate double-checking.

The invoices of company are being electronically attained from the suppliers and thereafter, the same is aligned with the orders received. This is done by an accounts clerk and the payments are also monitored by the management accountant of the company.

There is a material risk in relation to such invoices. Even though the orders are aligned with the invoices, there may be an issue with the orders for which the payments for same must be terminated or deferred. Further, after matching or aligning the order file and the invoice, the file of payments is then approved and sent to the banking authorities (Gay & Simnet, 2015).

The duty of payment procedures must not be solely in the obligations of a management accountant and the same must be jointly shared with other person who is engaged in the payments department (Mock et. al, 2013). Furthermore, the payments in relation to defective orders must be significantly subtracted and the same may not be depicted in the software.

If repairs are needed in the wine segment, the obligation if the same falls in the hands of the department manager. It is his duty to generate all online orders and the final process of payment is terminated or finished by the management accountant’s approval.

In relation to this, there is a material risk that there may be various undue costs on the repairing segments because there is no monitor or supervision on such requests that has been done by the department manager of wine segment. The management accountant and accounts clerk shall come into highlight only when the services are terminated and the service provider has also raised an invoice to the company (Mock et. al, 2013).

The function of repairing must be doubly verified by the management staff because it can facilitate in having a proper check on the requirement and costs being incurred on the repair operations (Mock et. al, 2013).

The management of supplies are handled or taken over department wise

In relation to this, the purchase managers of the company may place improper orders that is below ten thousand dollars because there is no doubly verification procedure below this order amount.

The requisition of purchase that has been issued by the departmental managers must be doubly checked with the records of inventory so that it can be ascertained whether there is an actual need of purchase or not (Elder et. al, 2010).

The management staff attains bonuses based on the agreed fulfilment of objectives like monthly sales, etc. This can be considered a very effective approach to engage the staff in promotion of sales in a justifiable and effective manner.

There may be a feasibility that the staff engaged in the department is personally involved in unethical affairs so that he can attain their monthly targets, thereby achieving additional profits (Niemi & Sundgren, 2012). In relation to this affair, it is notable that the same may facilitate in the destruction of company’s goodwill and reputation in the entire industry.

In relation to this, it must be noted that there must be a proper verification on the affairs of the staff engaged in the management and whose primary duty is to promote sales (Niemi & Sundgren, 2012). Furthermore, the same must be verified that the staff is not making any unethical assurances or promises to the clients of the company that may facilitate in the creation of additional nuisance all over. The reason behind this can be attributed to the fact that the company will not fulfil such false assurances and therefore, it may create a havoc and destroy the company reputation on a whole.

The information of suppliers has been stored or gathered in the master file of suppliers and the placed orders are being facilitated through an ordering system from the computers. Besides, the same is done only to the approved suppliers only and if by mistake, any order is provided to the unapproved suppliers, the same will be terminated and thereafter, is sent to the management accounts department for necessary approvals.

In relation to this, there is a prime business risk that the approved suppliers may alter their respective rates that has not been registered in the master file of suppliers. This can create a massive havoc in the entire smooth functioning of the company and therefore, corrective actions in this scenario is very crucial.

In relation to this, it must be noted that every time any order is being placed to the suppliers who are approved, there respective rates must be confirmed prior to placing of such orders. This can facilitate in avoiding such havoc, thereby paving a path for the mitigation of another business risk on the part of the company (Roach, 2010).

Weakness

Justification

There are no reconciliations to the payment made and to the accounts payable segment

In relation to this, the management accountant is under an obligation to rely totally on the system of information technology for the generation of payment file and other affairs. However, no ledgers for accounts payable and their reconciliations are being prepared.

There is no proper supervision and monitoring by the superior management in relation to the process of payment approval.

In relation to this, the management accountant must be primarily responsible for approving the payment file and uploading it to the bank later. The system may create a problem and hence, it is essential to have the manual system present so that contingencies can be met with ease and flexibility (Coram et. al, 2011).

There is no daily verification of the payment files

In relation to this the payment files must be usually verified at least once a week and the same must be undertaken by the management accountant himself.

Weakness

Justification

There has been extra or unwanted dependence on the approved suppliers.

The suppliers in relation to this are offered orders based on their previous goodwill or reputation. Furthermore, other crucial factors like variation in prices, variations in terms and conditions, etc have not been considered (Carcello, 2012). Hence, this lacking point as such information might play a leading role in the process of decision making.

There is no verification with the registers present in the stores.

In relation to this, the purchase orders are not verified independently with the goods present in the stock that may result in over or extra stocking of items in the storage place. Hence, differences can be observed in this regard and the same needs to be considered while aiding decision making process (Roach, 2010).

There are no separate files that have been prepared for the defective orders and low-quality items.

The accountant or clerk aligns the details of the order and the invoice and thereafter, sends the same to payment register. There may be few items that are of lesser quality or are defective in nature, and the same are not considered by such clerk (Blay et.a l, 2011). Nevertheless, only paper documentation is being done.