Modify the scope of the audit to reflect an increased risk of material misstatement due to fraud. An auditor should design the written audit program so that a.
All material transactions will be selected for substantive testing. Substantive tests prior to the balance sheet date will be minimized.
The audit procedures selected will achieve specific audit objectives. Each account balance will be tested under either tests of controls or tests of transactions. Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? Fictitious transactions may be recorded that cause an understatement of revenues and overstatement of receivables. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash.
The failure to prepare shipping documents may cause an overstatement of inventory balances. Accepting an engagement to The following will be the tests of control, substantive tests of transactions, and analytical procedures.
Acquire and record raw materials, labor, and overhead a. Tests of control i. Check to make sure that all materials ordered have been accounted for ii. Check to make sure that there are records for all orders iii. Check payroll from payroll and personnel cycle iv. Check to make sure that the inventory is not overstocked b. Substantive test of transactions i.
Take a sample of the orders placed ii. Make sure that the sample reflects that all material were received iii. Sample the payroll to make sure there are no discrepancies iv. Sample the inventory to make sure that it is replenished and constantly moving c. Analytical procedures i. Compare the results to prior years to ensure that the data matches up ii. Determine if there any risks 2. Internally transfer assets and costs a. Tests of controls i. Some companies have assigned ESG responsibilities to the Audit Committee — that raises more questions than answers.
Audit committees already are overloaded with financial report and ethics and compliance program oversight. As an alternative, companies should split off ethics and compliance to a separate committee, and could easily add ESG to the same committee. Audit committees are not the proper place for ESG management, and a strong case can be made that the full board is not nimble enough to manage ESG given all of the risks and issues that may arise in this fast-moving area. A company has to identify, measure and assess its climate and environmental risks.
While everyone may be tempted to assign this to the Audit Committee, Ethics and Compliance responsibilities entail a very similar process, requiring risk assessments, design of policies and procedures to mitigate those risks, and implementation, measurement and monitoring of compliance controls. This function translates well into the ESG sphere. ESG operations entail a cross-section of corporate operations — environmental concerns, social issues and ultimately governance.
Companies have to identify those issues falling under its ESG umbrella, tailor an ESG program and select key measures of performance. For example, in the social justice area, companies can craft a robust diversity, equity and inclusion initiative across the entire organization, meaning at the board, senior management, middle management, and employee level.
To execute this, a company would have to devote significant resources to addressing DEI issues at every level of the company. Measurement of DEI performance would require definition of objectives, collection of data, and disclosure of results. Regulatory disclosure requirements are likely to extend well beyond the concept of financial materiality. ESG disclosures will open up a whole new set of standards, controls and requirements surrounding proper disclosure of ESG-relevant information and performance.
DEI is just one example. Climate change and environmental issues will raise another interesting constellation of requirements.
Companies will have to determine what kids of information shareholders, investors and other stakeholders are focused on for ESG evaluation purposes. Authorization cards for rate Examine documents for Review information changes, new hires, termination. Get Access. Read More. Popular Essays.
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