Task group 10-32
All requisitions of warehouse daprtment are fulfilled by purchase department
Submission of document of purchase and the purchase order is attached
There are inefficiencies in the submission document combines the purchase and the purchase order document.
è Recommendation : we recommend to the Anthony CPA to cut the double match pf the document so it would be more efficient.
On receipt of goods department purchase orders and purchase requisition are not attached together
è Recommendation : the purchase order document is not match with the purchase requisition, it give a chance to manipulate the document.
In the accounting department all the necessary documents are required
- How does IT governance fit into an organization’s overall governance?
IT Governance is a subset discipline of Corporate Governance focused on information technology (IT) systems and their performance and risk management. The rising interest in IT governance is partly due to compliance initiatives, for instance Sarbanes-Oxley in the USA and Basel II in Europe, as well as the acknowledgment that IT projects can easily get out of control and profoundly affect the performance of an organization.
Control Objectives for Information and related Technology (COBIT) is regarded as the worlds leading IT governance and control framework. This is done by providing tools to assess and measure the performance of 34 IT processes of an organization. Originally created by ISACA, COBIT is now the responsibility of the ITGI.
2. The Executive Summary makes five recommendations for management with respect to IT. What are these recommendations?
- IT Governance Framework: Develop, or be part of the development of, an IT governance framework that includes the following responsibilities and tasks.
- Strategic Alignment: Develop, or be part of the development of, an enterprise’s IT strategy that includes the following responsibilities and tasks.
- Value Delivery: Develop, or be part of the development of, a systematic, analytical and continuous value governance process that includes the following responsibilities and tasks.
- Risk Management: Develop, enhance and maintain a systematic, analytical and continuous enterprise risk management process across the enterprise that includes the following responsibilities and tasks.
- Resource Management: Develop, or assist in the development of systematic and continuous resource planning, management and evaluation processes that include the following responsibilities and tasks.
- Performance Measurement: Develop, or assist in the development of, systematic and continuous performance management and evaluation processes that include the following responsibilities and tasks.
- What are three common pitfalls that should be avoided during brainstorming sessions? How can these problems be avoided?
|Four common pitfalls can hinder an audit team’s brainstorming effectiveness: group domination, “social loafing,” “groupthink” and “groupshift.”
Group domination is one of the most corrosive problems. Because the goal of a brainstorming session is to have audit team members share thoughts and ideas, one or two participants dominating the process can quickly squelch the creative energies of the group as a whole, reducing the likelihood the team will identify any actual fraud risks.
Audit teams are especially susceptible to this pitfall because of their traditional hierarchical structure. Senior team members may intimidate less experienced staff who look to them to lead the discussion. Other team members may defer to those assigned to lead the audit planning, believing they have had an opportunity to think in more detail about potential fraud risks. Furthermore, as in any group setting, there may be one or two vocal individuals with great confidence in their own ability and a determination to present their views. If any of these conditions are present, the intended benefits of fraud risk brainstorming—an exchange of ideas among the entire team—may never materialize.
Social loafing, also called free-riding, is another potential pitfall of brainstorming activities. It occurs when participants disengage from the process, expecting that other team members will pick up the slack. Given their size and geographic dispersion, large audit teams may be particularly susceptible. Other reasons for such “loafing” may include the “why bother” feelings that stem from group domination, the absence of compelling incentives to actively participate in the discussion and an individual’s failure to make a sufficient personal investment in the group’s task. It may be that members of the engagement team are juggling numerous client engagements or some team members may be working on a specific aspect of the engagement, such as IT or tax specialty work and thus may “check out” when the discussion does not directly address their specific aspect of the engagement.
Fear of losing credibility also may prevent individuals from participating. If individuals feel they need to protect their standing, they will be less likely to voice an unpopular idea or opinion. This may be a problem for less experienced audit staff members or others recently assigned to the client engagement. They may feel unqualified to speak openly about engagement-specific risks or be reluctant to do so in front of more experienced engagement team members, who eventually will play a role in their performance evaluations. Such self-censuring behavior can hinder a group’s ability to handle the complex nature of the fraud-risk-assessment process—the very type of problem for which “outside the box” thinking is critical.
Groupthink is another pitfall to avoid. This phenomenon occurs when team members become so concerned with reaching consensus that they fail to realistically evaluate all ideas or suggestions. Audit teams can be particularly susceptible to this as auditors generally are very sensitive to time/budget pressures. Thus, they quickly may align with the group’s view of fraud risks in an effort to complete the task efficiently. Also, because the brainstorming requirement is new, there may be a lack of “buy in” that prompts team members to embrace the group’s views quickly in order to move to other tasks perceived as being more critical.
Groupshift is the fourth pitfall. While a purpose of brainstorming sessions is to help the audit team collectively arrive at conclusions about fraud risks, team leaders must exercise caution to avoid allowing the team to take an extreme position on fraud risk. For example, a group whose members generally are conservative might shift toward a more conservative position while a group of risk-takers might lean toward even riskier positions. With the recent emphasis on fraud detection, there is some cause for concern audit teams will assume the risks are high in all engagements.
There are costs of such overreacting. For example, if there is an overrated risk of fraudulent activity within inventory, an auditor may expand audit procedures related to inventory observation, inventory pricing, and cutoff, leading to excessive and unnecessary audit work. Worse yet, an auditor may rush to judgment and accuse client personnel of wrongdoing without the proper basis for doing so. Given groupshift’s potential impact on audit effectiveness and efficiency, all audit teams should be concerned about it.
- Use EDGAR to search for Tri-Valley Corporation (TVC) and Monarch Staffing Inc. Find TVC’s 10-K and Monarch’s 10-KSB for the year ended 12-31-06.
Monarch Staffing Inc:
Establishing materiality for the audit of a client’s financial statement requires considerable judgment. The allocation of the auditor’s preliminary judgment about materiality to the client’s accounts requires substantial judgment as well. For this reason, decisions about materiality are made by more experienced auditors. The following problem affords you an opportunity to apply the concept of materiality to an actual set of financial statements.
Imagine that you are employed as an auditor in a CPA firm that performs the audit of Microsoft. Your firm’s materiality guidelines indicate that overall engagement materiality should be set at an amount between five and ten percent of income before taxes.
a. Apply your firm’s guidelines to Microsoft’s 2003 financial statements. What percentage of income before taxes do you believe is appropriate? Why? What do you believe overall engagement materiality should have been for 2003?
b. Given Microsoft’s 2003 balance sheet, what asset line items would be allocated the highest amount of tolerable misstatement? Why?
1. Step in determining materiality in the implementation of the company:
– Determine the initial consideration of the materiality
– Allocate initial consideration of materiality to the segment
– Estimated total errors in the segment
– Estimate the combined error
– Compare the estimate with the combined initial consideration of the materiality
Selected materiality level of 5% -10%, because every company is different in determining the level of misstatement. An auditor should consider from the beginning. If the misstatement rate is less than the materiality level is considered reasonable profit company. Vice versa.
2. Asset trade receivables and inventory into assets with one item that can be tolerated food is very high. Misstatement that could be tolerated because the estimates of high and reap the audit require extensive testing.
Internet Problem 8-2 (Obtain Client Background Information)
Planning is one of the most demanding and important aspects of an audit. A carefully planned audit increases auditor efficiency and provides greater assurance that the audit team addresses the critical issues. Auditors frequently prepare audit planning documents that provide client and industry background information and discuss important accounting and auditing issues related to the client’s financial statements.
Your assignment is to find and document information for inclusion in the audit planning memorandum. You should obtain the necessary information by downloading a public company’s most recent annual report from its web site (your instructor will give you the company’s name). You may also use other sources of information such as recent 10-K filings to find additional information. You should address the following matters in four brief bulleted responses:
- Brief company history.
- Description of the company’s business (for example, related companies and competitors).
- Key accounting issues identified from a review of the company’s most recent annual report. (Note: Do not concentrate solely on the company’s basic financial statements. Careful attention should be given to Management’s Discussion and Analysis as well as the Footnotes.)
- Necessary experience levels (that is, years of experience and industry experience) required of the auditors to be involved in the audit.
- Read about ACL’s solution for data quality and fraud detection. How might an auditor use ACL’s data analytics software for these two purposes?
ACL is the preferred purpose-built technology for fraud detection worldwide. The auditor can use data analytics software with monitoring staff time and attendance data, test 100 percent of transactions, quickly acses data from any source, flag all suspicious activity, summarize fraud risk for management review, and uncover all relevant anomalies and automate the auditor test for continuous fraud monitoring to catch problems before they escalate.
2. How might ACL be used by a company to comply with the requirements related to internal control over financial reporting? Hint: Take a look at ACL’s Continuous Controls Monitoring software.
By providing perpetual assessment of key control and insight into transactions
- Read the statements issued by the PCAOB and SEC on May 16, 2005 and briefly describe the apparent underlying cause(s) for auditors’ failure in applying the concept of reasonable assurance. Hint: Read the portion of the PCAOB’s policy statement entitled “The Importance of Professional Judgment.”
The overall objective of Auditing Standard No. 2 is for the auditor to obtain evidence that a company’s control system reasonably assures that its financial statements do not contain material misstatements. To accomplish this, the auditor must not only exercise judgment to determine how to apply the standard to audit clients in different industries and of different sizes, but also exercise judgment to focus their work on areas that pose higher risks of misstatement, due either to errors or fraud. Reliance on standardized checklists that lead to a focus on controls in low-risk areas obviously fails to meet this objective.
2. Why do you think firms had such difficulty in applying the concept of reasonable assurance during the first year of implementation of section 404?
Both management and external auditors must bring reasoned judgment and a top-down, risk-based approach to the 404 compliance process. A one-size fits all, bottom-up, check-the-box approach that treats all controls equally is less likely to improve internal controls and financial reporting than reasoned, good faith exercise of professional judgment focused on reasonable, as opposed to absolute, assurance.
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