Audit Risks And Internal Controls In Business Operations

Account

Evaluation

Audit risks

Audit steps to minimize the risks

Investments

There is a downward trend in the times income procured from the investment.

As there is a downward trend in the interest earned from the investments as compared to the previous years, it can perhaps be either due to the undervaluation of such items or material manipulation/ misstatements while recording the values of the same (Church, Davies & McCracken, 2008).

To mitigate or minimise the audit risks related to the company’s investments and interest earned, the auditor must look for the reason attributing to low interest earned. Also, the auditor should appropriately scrutinise the receipts from investments (Geoffrey et. al, 2016).

The auditor should scrutinise and assess such investments associated with their disposal. In case if such investments are disposed of, the auditor should look for the related transaction papers like receipts, contract note, etc. and cross verifies them.

Marketing cost

Unlike the previous 2 years, it is noticed that the marketing expenses has gone up. It could be due to the inflation experienced by the company in the beef segment.

One of the extensive audit risks lying in context to marketing cost is that such costs includes other disallowed costs and the personal expenses of the directors (Cappelleto, 2010).

The audit risks involved in marketing costs can be mitigated, and for that, the auditors need to cross verify every supporting document of marketing cost (Gay & Simnet, 2015). It is also required for the auditors to check if management passed and authorised all such materials. The auditors must also make sure that the cost bills of whatever nature hold a significant value.

Property assets

Below are the fluctuations with regards to return on property assets-

Comparing with the previous year, return on assets in context to production of wine and grape has fallen.

Comparing with the last year, the return on assets in context to production of beef has risen. In 2018, the ROA on production of beef was close to 1.67% and -0.82% in the year 2017.

Audit risk in context to ROA can be the over statement of beef sales so as to showcase a better financial position. Also, in the area of beef sales it can be seen that the company is facing negative values for the last 2 years (Kaplan, 2011).

It is the responsibility of the auditor to review the sales ledgers along with the sales order register for the orders received.

Scrutinizing and reviewing the revenues and sales earned from beef sales is also required by the auditors to trace the realism related to the sudden increment in the ROA of beef (Hoffelder, 2012).

The auditors should also scrutinise the return percentage on beef to compute the figures efficiently.

The auditors should also review the internal control mechanisms related to returns and sales so as identify sales and revenue figures presented by the company (Baldwin, 2010).

Accounts receivable

Comparing to 2017, it can be seen that in 2018, there is a prominent rise in the number of days of debt collection.

Misunderstanding of the debtors aging is one of the important audit risks associated. Also, the presentation of the performance of the company gets impacted with the rise in number of days of debt collection.

It is the responsibility of the auditors to scrutinize and review the debtors’ aging register and should also, compare bad debts to bad debts allowances that are allowed by the management.

Effective Control

Risk alleviated

Test of Control

Installation of Information technology that has an automatic system and helps in securing data with passwords.

The company has not appointed any professional from the information technology field to look after the IT framework of the company effectively. A management accountant who is neither experienced nor a professional in IT is delegated the responsibility of looking after the information technology department of the company. This can be a considerable risk for the company to deal with. The information technology but is not secured with password and can be of massive threat to the organisation and its activities (Parrino et. al, 2012).

For the test of control, the organisation should appoint a professional who has experience and required knowledge to look after the IT department efficiently. The organisation should also nominate a management staff to verify the data related to information technology to prevent frauds and detect errors in the initial stage itself. Also, the IT bae must be secured with difficult passwords to eliminate the risk of information leakage, and manual checks of the data recorded must be made to avoid frauds and errors in its initial phase.

The clerk aligns the orders received to that with the invoices of the company that are received electronically from the suppliers. The management accountant of the organization is responsible for monitoring the payments.

Issues related with the cancelled orders can be troublesome to some extent even though the orders are allocated with the respective invoices. It is a major risk in connection with these invoices (Peirson et. al, 2009). Once the alignment is done, the file of payments is sent to the bank for approval.

There must be an involvement of at least one person from the payments department along with the management accountant so as to look after the payment procedures. The payments from defective orders should be immediately deducted in the system (Sikka, 2009)

The department manager is aligned to look after the repairs if any in the wine segment while the management will look after the generation of online orders and the processing of their payments.

Underlying repairing costs that are long due can be one of the material risk company can face. Only on the cancellation of services and the invoice raised by the service provider to the company can highlight the company’s management accountant and its accounts clerk.

The management staff should make sure to double check the requirement of repairs and the costs incurred for the same.

The departments are allocated the task of handling various supplies.

The business risk involved here is associated with the placement of improper orders by the purchase managers of the company that are less than 10,000$ as there is absence of double checks below 10,000$.

The actual need of purchase should ascertained by double checking the records of the company with regards to the requisition of purchase issued by the departmental managers (Tadros, 2017).

The employees are paid a bonus on the basis of monthly sales initiated by them. This will allow the rise in sales for the management staff will always be encouraged about the same.

There are chances that the employees of the company involve themselves into unethical practices so as to achieve their targets for the respective period and earn bonus which in return can harm the company’s reputation.

Monitoring the activities of the employees from the management engaged in uplifting company’s sales is required. It must also be made sure that the employees from the administration involved in promoting sales are not making any false promises to the customers or isn’t involved in any unethical practices that can damage the company’s goodwill  (Tadros, 2017).

The orders are placed using an online ordering system, and the details of suppliers are recorded in the master file of suppliers. Also, it is only done in the case of approved or regular suppliers. In the case of unapproved suppliers, the order placed is cancelled and reported for required approvals from the management accounts department.

The risk involved here is the alteration of rates that were agreed upon by such approved suppliers whose name was not incorporated in the master file of supplies of the company.

In the case of approved suppliers, whenever an order is placed, it is required for the management to update them with the rates before the placement of such laws. To avoid the occurrence of associated business risks if any.

Weakness/inefficacy

Justification

There is no usual or routine verification of the payment registers.

Since the payment registers are verified once every week, it is a prime weakness and the same has been undertaken only by the company’s management accountant.

The high authorities have failed to exert proper supervision on the path of payment approval.

In this case, only the management accountant is liable for approving the payments and intimating this to the banking department.

The company has failed to facilitate reconciliation measures to the accounts payable segment.

In this case, the management accountant relies on the information technology system on a whole but still ledgers to accounts payable and their reconciliations are not being drawn.

Weakness/inefficacy

Justification

There are no alternate files that have been made for the defective or low-quality commodities.

The accounts clerk has been matching the details of order and their invoices, and thereafter, records the same in the payment register. There may be few lower-quality or inferior products as well that are failed to be considered by the accounting department. Besides, in contrast to this, only the documentation of papers has been verified by the department (Baldwin, 2010).

There has been no verification of the stores file.

The order of purchases has not been independently verified with the stock of commodities that can result in the overstocking or extra stocking of such commodities in the company’s storage place.

There has been unwanted and too much reliance upon the approved suppliers.

In this case, these suppliers are offered orders owing to their past goodwill and reputation in the company. However, factors like variation in prices, variation in time, and alteration in decided terms are not accounted for.