Discuss about the Report for Rapid Advancement in Technology.
With a rapid advancement in technology and internet, the focus and operations of a business firm have shifted from the traditional paper and manual technique to the electronic and automated process via internet. Now, firms as well as the consumers effect the transactions relating to purchase or sale of any commodity over the internet. Internet provides such services at very reasonable prices and saves a lot of time. It also provides a universal platform for vendors and buyers to interact and thereby, bring about efficiency along with effectiveness.
1: With the advent of technology and particularly, internet, transacting over the internet has become a recent trend. Business firms tend to purchase and sell products, raw material as well as semi finished god over the internet. Purchasing and selling goods over the internet has a very remarkable impact on business. Technological advancements have led to an automation of the traditional processing operations. And it also provides a replacement for the manual labor with the help of machines. Through internet, products can be purchased and sold online, and it requires only one trained executive who works in the machine, rather than a group of labor persons involved in the traditional process (Paul D, Weygandt and Kieso, 2011).
Through internet, information can be processed much faster as all the information and data are stored at a single place. So, it is more convenient for the business firms to track and update their portfolios. Also, internet enables business firms to enter and diversify into much newer communication portals through which it can electronically communicate with its customers, suppliers as well as its employees. This gives a new direction to the traditional communication process, which was lengthy and very time consuming.
Moreover, with the help of internet and technology, firms can create their own personalized business websites, wherein, they can maintain a proper database of the products offered by them, its specifications and provides a platform where consumers can review the information they wish to, via internet. Through internet, all the manual tasks performed by the business personnel are transformed into electronic form, and the firms use various software packages, which help various business internal departments to review their effectiveness and the efficiency with which they perform business operations. Also, internet converts the entire world into a global village and goes beyond all the geographical and demographic barriers. One can purchase products from anywhere in the world anytime. Thus, the consumer has a much wider scope, choice and price benefits.
Though the advantages that the internet offers cannot be overlooked, but, internet and technology continuously needs to be monitored, revised and updated. This upkeep and maintenance costs are much high since the technology gets obsolete once and forever. In the ever growing competitive business environment, firms which are technologically updated enjoy a competitive advantage over the firms which continue to follow the traditional practices and do not believe in such technological advancements. The investment involved in establishing and maintaining supportive technological software is very high. Hence, the decision about such investment should be made very carefully, analyzing all the advantages and costs the firm shall have to incur. Through internet, it has become much easier for the consumers to search and identify the products which meet their specifications and expectations. Hence, it is very time saving and also saves a lot of transportation costs. Due to adverse competition in the market and in a bid to gain competitive advantage, business firms offer personalized and high quality customer service and thus improves supply chain management.
2: E- commerce or more specifically, E- business offers both the consumers and the business firms numerous advantages related to offering the best reasonable price for the products, wider choices to the consumers, time and cost saving for both business firms and consumers, etc. but, the risks associated with transacting over the internet are innumerable. Internet attracts higher degrees of frauds. Fraud can be referred to as an unwarranted intrusion into the company’s system or deception. When transacting any online purchase/ sale, it is very difficult for the firms to identify whether the person entering the credit or debit card details in the payment gateway, is the real owner of the card. Many a times, such credit/debit cards are being misused by hackers, who attempt to take an undue advantage, hence, in such a case, the real owner of the card loses money as well as doesn’t get hold of the products ordered. This is the biggest risk that firms face, in the present (Internet Security, 2002).
At times, the local laws of the state may conflict with the national law and the delivery of certain products in certain states may be illegal due to local legislations. In such a case, the firms may have to pay certain penalty and face prosecution. SO, the firm be very well aware about the national as well as the locals laws and regulations framed by the Government. While effecting an online purchase or sale transaction, an higher level of internet security is required by the firm’s technological department. Internet always attracts risks and frauds. Hackers may try to access the firm’s customer database or the payment details. Also, firms face a higher degree of risk of malicious software or viruses being inserted into the operating system (Tryfonas, 2010). Transacting over the internet require a firm to create its own personalized website. And the firm may wish to get it designed professionally. Also, the firms wish to obtain copyright for their offered brand name and products to prevent any unauthorized use r reproduction of such name. These involve huge costs and due to increased market competition, the firm may take a very long time to get its costs covered. Internet security is very much required to give effect to a safe online transaction. Use of appropriate firewalls and payment gateways are required.
Also, the firms transacting online have to face an unsustainable site traffic, which would increase and the site would work slow or even have a downtime, due to increased number of users having access to it at the same time. Firms tend to publicize their websites using Google domains, mainly and thus attracts higher number of user at a time. In case of an online transaction, both the firms as well as the users should possess adequate technical know- how about the scope and use of internet, else, they can be easily tricked by hackers. Also, the customer database tends to be leaked and I such a case, the consumer receive a lot of spam e-mails, telemarketing mails and spam phone calls, which they wish to avoid. Hence, proper care must be given in maintain the consumer database.
No doubt, the services offered by internet and its advantages are innumerable, but proper attention has to be given about the above mentioned risks while transacting online.
3: Frauds refer to misstatements in the financial statements which may occur due to fraud or by error. If the mistake committed in intentional, then it shall be termed as fraud, and in all other cases, it shall be an error. The risks from online transactions may lead to different misstatements in the financial statements. A firm may record only the prepaid transactions, as a part of sales in the financial statements and may overlook the cash on delivery transactions of sale being affected. This shall give rise to a material misstatement in the financial statements by reason of fraud. Also, the expenses incurred by the firm in obtaining copyrights may be considered as revenue expenditure by the firm, but, the same shall be a part of intangible asset of the firm. So, it is a case of material misstatement by reason of error. The expenses incurred by the firm in getting software packages and firewalls, that would ensure a secure online transaction, may be clubbed under the head of computers and eligible for 60 % depreciation, but, as per the recent laws, software shall be a part of revenue expenditure and hence, needs to be corrected.
Misstatements in the financial statements may arise due to inappropriate recording of the inter- state and intra state sales of products. It may be liable to different tax rates and hence, nee to be taken care of. There might arise misstatements in the financial statements if the firm includes the penalty paid for illegal delivery of products to the cost of sales. It is a form of expense not relatable to sales and shall be separately recorded under revenue expenditure. If included in the cost of sales, it might misstate the amount of sales effected during any financial year (Gay & Simnett, 2012).
Also, the firm may intentionally fail to disclose its related parties and the related party transactions. This would lead to a severe misstatement in the financial statements.
4: The auditor can follow the following steps to identify the frauds and misstatements from online transactions. The auditor should inquire the management and those charged with governance about their risk assessment procedures of identifying and evaluating frauds in the financial statements. Also, an opinion has to be formed of any hint of any fraud or misstatement that the managers or those charged with governance have (Hodson, 2007).
The auditor must check all the items of revenue expenditure and ensure that no capital expense, like expense on acquiring copyright is included in determining the net profit of the firm. Copyrights from part of intangible assets and must be shown in the balance sheet of the firm (Addleton Academic Publishers, 2009). The auditor must ensure that all the amounts credited on account of online sale are affected in the firm’s bank account and no entries missed. He should check the detailed log book of the orders accepted, taken and delivered and ensure that no order or its payment/ receipt of money are skipped.
All the cash on delivery- all orders must be tallied with appropriate evidences and with the orders accepted. It must be carefully ensured that such cash on delivery orders are also recorded under the total sales of the firm. All the bill invoice numbers serially arranged and tallied, so that no order invoice is missed, either by error or fraud, by the management. The firm’s seal must be checked in all the important documents and confirmations from the persons, to whom any sum is due, as per the financial statements must be mandatorily obtained (ISACA, 2009).
The auditor should check that the inter-state and intra state transactions of purchase and sales are segregated and separately accounted for, as per the applicable accounting provisions. During the audit of the financial statements, if the auditor comes across any unusual or unexpected transaction, then, he should carefully consider those and carry on analytical procedures (Addison Wesley Longman, 2003).
Conclusion
The benefits derived from technology and particularly, internet cannot be overlooked, but, at the same time, it poses greater risks of frauds and misstatements in the financial statements of a firm. Hence, the auditor is required to carefully analyze and carry out all the risk assessment controls, so that he can lay his unbiased and correct opinion on the financial statements of a firm. Internet transactions attract greater degrees of risks of frauds and errors, hence, the level of cautiousness and due diligence the auditor has to exercise while conducting the audit, is commendable.
List of References
Gay G, R, Simnett (2012). “Auditing and assurance services in Australia”, McGraw-Hill, revised 5th edition.
Kimmel, Paul D. , Jerry J. Weygandt and Donald E. Kieso (2011). ‘ Financial Accounting : Tools for Business Decision Making’, 6th ed., Hoboken.
ISACA- Serving IT Governance Professionals (2009). IS standards, guidelines and procedures for auditing and control professionals, USA.
Samtani, G. (2002). Internet Security. B2B Integration: pp. 287-322.
Tryfonas, T. (2010). Information Security Management and standards of best practice. Handbook of Electronic Security and Digital Forensics: pp. 207-236.
Nicholas H. M (2007). Why Auditors Don’t Find Fraud. Private Equity, Corporate Governance and the Dynamics of Capital Market Regulation.
Lonescu, L. (2009). Internal control and auditing procedures. United States: Addleton Academic Publishers.
Arens, A.A. (2003). Auditing an assurance services: An integrated approach. United States: Addison Wesley Longman.
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