...Audit risk is the likelihood that an audit team will give an unqualified opinion when the financial statements are, in fact, materially misstated. Inherent risk is the probability that material errors or frauds will enter the accounting system used to develop the financial statements. These are controlled by the client. Control risk is the risk that a client’s internal control system fails to prevent or detect material misstatements. Detection risk is the likelihood that an auditor’s procedures will fail to detect material misstatements. The components of the audit risk model affect the amount of evidence collection needed to support an auditor’s opinion. There is an inverse relationship between the audit risk and the amount of evidence gathering. A lower level of audit risk indicates greater evidence. Detection risk also has an inverse relationship with evidence collection. Inherent and control risk have a direct relationship with the amount of evidence. For example, a low inherent risk indicates a low amount of evidence gathering. Two red flags in the Sunbeam case included a complex business structure and the linking of management compensation to increases in company stock prices. The downsizing of the company’s assets involved various calculations which were controlled by the company. These transactions increased inherent risk and control risk, because of potential accounting errors. The combination of inherent and control risk is referred to as the risk of material...
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...functions of auditing. Relate your explanation to the audit functions in your organization, or an organization with which you are familiar. In your paper, be sure to address the following: Describe the elements of the Generally Accepted Auditing Standards (GAAS). Describe how these standards apply to financial, operational, and compliance audits. Explain the effect that the Sarbanes-Oxley Act of 2002, and the Public Company Accounting Oversight Board (PCAOB), will have on audits of publicly traded companies. Discuss the additional requirements that are placed on auditors from this Act, and the actions of the PCAOB. ACC 491 Week 1 DQs Access the SEC home page at http://www.sec.gov. What is one of the most recent litigation brought by the SEC against a public firm or against an accounting firm? Read the abstract of the complaint and download the document filed with the court. Comment on the nature of the litigation. What is one the most recent Staff Accounting Bulletin that provides guidance to the profession? What was the guidance given? The Sarbanes-Oxley Act of 2002 has been described as the most far-reaching legislation affecting business since the passage of the 1933 Securities Act. What are the specific portions of the legislation that affect the external audit profession, and how do they affect the profession? How does the legislation affect the internal audit profession? What are some activities that...
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...WORKING PAPER Auditor Independence: An Examination Independence Risk Factors and Mitigating Factors on Auditor Judgment Barbara M. Vinciguerra Penn State Great Valley School of Graduate Professional Studies Auditor Independence: An Examination Independence Risk Factors and Mitigating Factors on Auditor Judgment Abstract Professional standards require auditors to be independent in the performance of attestation services. Critics of the accounting profession have expressed concern that pressure to maintain and develop business opportunities may erode an auditor’s objectivity and independence when making audit judgments. The profession contends that aspects of the auditing environment such as peer review, consultation review, and auditor professionalism serve to mitigate this risk. This study examines the impact of financial dependence, consultation review requirement, and moral development on a judgment based audit decision. Fifty-four experienced auditors were asked to assess the appropriateness of an audit client’s proposed change in accounting estimate for warranties. Two levels of financial dependence (Large client with potential for additional consulting revenues / Small client) and two levels of consultation review requirement (Required / Not required) were manipulated in the case materials. Moral development was measured using the Defining Issues Test (DIT) p-score. Results of the tests indicate that the presence of a consultation review...
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...“Ethics Audit Benefits.” Please respond to the following: Compare (1) the benefits associated with conducting an ethics audit against (2) the challenges of measuring nonfinancial performance and the risks inherent in ethics auditing. Ethics audit is a systematic evaluation of an organization’s ethics program to determine if it is effective or not. Effectiveness of programs and polices can be improved and organization can identify potential risks and liabilities and can improve its compliance with the law (Ferrell, Fraedrich & Ferrell, 2011, pg.243-245). The ethics audit, like the financial audit, should be conducted regularly rather than in response to problems involving or questions about a firm’s priorities and conduct. The process of auditing and reporting a firm’s ethics programs is no guarantee that it will avoid challenges related its efforts. In addition, because this type of auditing is relatively new, there are few common standards to judge disclosure and effectiveness or to make comparisons. The auditing process can also demonstrate the positive impact of ethical conduct and social responsibility initiatives on the firm’s bottom line, convincing managers and other primary stakeholders of the value of adopting more ethical and socially responsible business practices. Determine if it would ever be better not to conduct an ethics audit. Explain your rationale. Ethics audits help know the ethical goals and standards that need to be achieved. These...
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...the tone of the organization and includes “the integrity, ethical values, and competence of the company's people” (Louwers, Ramsay, Sinason, & Strawser, 2007). 2. Risk assessment – Involves a thorough assessment which “identify(s) risks, estimate their significance and likelihood, and consider how to manage the risks” (Louwers, Ramsay, Sinason, & Strawser, 2007). 3. Control activities – Involve specific actions which help ensure that management’s objectives and expectations are carried out. 4. Monitoring – Ongoing evaluation of internal controls performed on a timely basis. 5. Information and Communication – Relates to the efficiency and reliability of information and communication refers to how the information is presented to communicated to users. |Defining the Control Environment |Yes/No | |Is there a clear method of assigning authority and responsibility? | | |Is there a clear transparency within the audit trail? | | |Are company policies and practices accessible understood at the employee level? | | |Defining Risk |Yes/No | |Is there an adequate amount of information...
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...Recommendation Brief for an Internal Accountant Every business needs proper and adequate internal control to ensure success of the company. Internal control reduces the risk of financial fraud and financial misstatement. When a company has an out of control system, it is recommended to hire an internal auditor to perform internal audit. This report will briefly explain the benefit of using internal auditor and how the qualifications and background of the internal auditor will benefit the company. Benefit of Internal Auditor Internal auditing is designed to improve an organization’s operations. The opportunities of internal auditing within an organization involve effectiveness of operations, protection of assets, detecting and investigating error and fraud, consistency of financial reporting, and compliance with the laws and regulations. Internal auditors must be hired by the company to perform the internal auditing activity such as this. Internal audit highlights problems such as risk of lawsuit and company loss, in which it allows to correct any mistakes in a right time. Internal audit also make sure that the company policy are well organized and efficiently and effectively running. They review and evaluate company’s information systems and internal controls to verify if financial records are accurate and reliable. With adequate internal controls, internal auditors are confident enough that financial misstatement are prevented and detected on a timely basis. The scope...
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...customers, regulators and stakeholders. It defines the policies and procedures under which an IT organization functions, as well as the mechanism to ensure compliance with those rules and regulations. IT Governance also provides the structure through which the IT Organization’s objectives are set, and the means of attaining those objectives and monitoring its performance IT governance is important simple because it guarantees value and eliminate majority of risks and limits future risk. IT determines how well services are provided and how well the company is reaching its customers. Providing service can also expose the business to risk that can interfere with daily operations. Management must be able to make good decision that will minimalize risk. IT governance has the management’s ability to organize, control and direct the company’s IT activities and its objectives. In IT governance organizational structure, leadership and processes are utilized to control the resources and align IT. This also includes management risk, handling of resources and maintaining the performance of management. This challenge the expectations of stakeholders particularly when business components use similar services and applications are held by specific business units that organize and control the budget to support, create new developments and designs. This method needs the assessment of responsibilities and...
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...Determine the roles of a project manager 4. Explain the importance of project management ORGANIZATION STRATEGY AND PROJECT SELECTION 1. Understand the strategic management process and the four activities involved at such 2. Define and explain the need for an effective project portfolio management system 3. Identify the classifications of a project 4. Identify sources and solicitation of project proposals 5. Rank proposals and select projects 6. Explain how to effectively manage a portfolio system in terms of risks and types of projects ORGANIZATION: STRUCTURE AND CULTURE 1. Determine the different project management structures 2. Identify the different ways to organize projects 3. Explain the essence of right project management in terms of both organizational considerations and project considerations 4. Explain organizational culture and justify its implications to organizing projects DEFINING THE PROJECT 1. Identify the different steps involved in defining a project 2. Understand process breakdown structure 3. Explain the responsibility matrices 4. Understand project communication plan ESTIMATING PROJECT TIMES AND COSTS 1. Identify the factors influencing the quality of estimates 2. Understand estimating guidelines for times, costs and resources 3. Compare between top-down and bottom-up estimating 4. Determine the methods for estimating project times and costs 5. Explain the level of detail, types of costs and how to refine estimates DEVELOPING A PROJECT...
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...reproduce and repackage those over leaded whistles. We should address this issue seriously and try to conduct a legal and ethical solution before customer’s complains. Otherwise, the company’s ethical reputation would be damaged and the sales revenue would be affected dramatically. After brainstorming and reverse brainstorming, with the consideration of different perspectives including product, planning, potential and people, I suggest the following three decision alternatives: 1) Since the lead is only slightly above the U.S. limits, we may continue the shipping without further notice to the public. Obviously, the advantage is that the shipment request will be fulfilled on time and the disadvantage is that the company may take the risk to lose the ethical reputation if it is released to the public. It would be no financial loss and no impact on the toy shipment. However, it could be tagged as unethical behavior if it is released to the public, which means it may affect the future sales revenue. In addition, it may cause some legal suits if there are any affected customers because of those toy whistles. 2) We recall the product immediately by reproducing and repackaging the new whistles. The advantage is that it creates positive company reputation and the disadvantage is the financial loss of $100k to reproduce and repackage. It would bring a big number of financial losses in a short term, but it would...
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...Risk Identification There are many tools and techniques for Risk identification. Documentation Reviews • Information gathering techniques o Brainstorming o Delphi technique – here a facilitator distributes a questionnaire to experts, responses are summarized (anonymously) & re-circulated among the experts for comments. This technique is used to achieve a consensus of experts and helps to receive unbiased data, ensuring that no one person will have undue influence on the outcome o Interviewing o Root cause analysis – for identifying a problem, discovering the causes that led to it and developing preventive action • Checklist analysis • Assumption analysis -this technique may reveal an inconsistency of assumptions, or uncover problematic assumptions. • Diagramming techniques o Cause and effect diagrams o System or process flow charts o Influence diagrams – graphical representation of situations, showing the casual influences or relationships among variables and outcomes • SWOT analysis • Expert judgment – individuals who have experience with similar project in the not too distant past may use their judgment through interviews or risk facilitation workshops Risk Analysis Tools and Techniques for Qualitative Risk Analysis • Risk probability and impact assessment – investigating the likelihood that each specific risk will occur and the potential effect on a project...
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...Brief words in governance – D1 • Compliance defines governance. • Value Risk Alignment. • Agility, Synergy, Autonomy. • Are we doing the right thing? • Duopoly. • Cobit is a top down view. • Cobit is a top to bottom shop. • Cobit is a control framework for information. • Cobit has detailed instructions on what to do? Not how to do it. • Cobit & ITIL are mapped on what to do / how to do it • IT should prompt the business to approve IT initiatives. • Always assign a business executive for each project, monitor business metrics. • EA is a Standard, Discipline (job), Tool for alignment and a Best practice. • It took ING bank 6 years to reach maturity of IT value. • Solvay did it by: o Build a skill catalogue. o Build a capacity sheet. o Pick skills + estimated time for each project. • Demand and supply process has no specific standard. • Outsourcing now is being used to achieve innovation. • Define business objectives from outsourcing. • IT has to do its performance metrics as any other business unit. • If you can measure you can manage. • Balance score cards require effort. • IT score card is the last step of defining IT goals. • Mapping metrics to IT : o Fewer measures are better. o Measure IT in business terms not technical terms. o Do business impact analysis for IT metrics. • ING bank has applied Net Present Value for IT this is a business metric!! • Control is: nothing is going wrong. • Internal control is management. • Embed IT within the...
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...Ethics Audit Framework Essay # 3 Stephen Randall Texas A&M University – Central Texas Professor: Marshell J. Silva Ethics Auditing Ethics auditing by definition, an ethics audit is a “systematic evaluation of an organization’s ethics program and/or performance to determine its effectiveness.” This concept of ethics auditing is fairly new and few companies have conducted an ethics audit. However, performing such audits will likely become more mainstream as recent legislation encourages greater ethical accountability for companies to demonstrate they are abiding by the law and have established programs to improve their ethical decision making. The U.S. Sentencing Commission (the “Commission) has amended the Federal Sentencing Guidelines for Organizations (“FSGO”) whereby an effective compliance and ethics program must “exercise due diligence to prevent, detect, and report criminal conduct and otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with all applicable law." The Commission noted there are seven minimum requirements of an effective ethics program, standards and procedures to prevent and detect criminal conduct; Responsibility at all levels of the program, together with adequate program resources and authority for its managers; Due diligence in hiring and assigning personnel to positions with substantial authority; Communicating standards and procedures, including a specific requirement for training...
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...Risk Management Planning Carvella Bennett Everest University Risk management planning is the process of developing options and actions to enhance opportunities and reduce threats to project objectives. Risk management implementation is the process of executing risk management actions. Effective crisis response begins with effective decision-making. Good initial decisions can make even a catastrophe manageable; bad decisions can fatally exacerbate an otherwise small problem. In both cases, the window of opportunity for initial decision making is extremely small and closes rapidly. Once the moment for decision making has gone, it does not come back. Proper crisis response is about developing a range of emergency management options that can be exercised and that focus on what could happen, not what will happen. This is achieved through practice, and lots of it. It is no easy task getting a crisis management team together for the first time during an unfolding emergency. In all cases, the best crisis management results are delivered on-site and in the same time zone. However centralized a company may be, when it comes to crisis management, even local staffs need to sharpen their crisis management skills because ultimately, those are the ones that will be used when disaster first strikes. When actually organizing a live run-through of the crisis management plan, the scenario should ideally be one in which a business system is disabled. It is better to act this out in a real...
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...whether transactions and events have been recorded in the correct accounting period. Audit procedures must ensure that transactions occurring near year-end are recorded in the financial statements in the proper period. For example, the auditor may want to test proper cutoff of revenue transactions at December 31. This can be done by examining a sample of shipping documents and sales invoices for a few days before and after year-end. Audit evidence: Audit Evidence is evidence obtained during a financial audit and recorded in the audit working papers. In the audit engagement acceptance or reappointment stage, audit evidence is the information that the auditor is to consider for the appointment. For examples, change in the entity control environment, inherent risk and nature of the entity business, and scope of audit work. Subsequent Event: Subsequent event is the accounting term for a financial transaction that occurs after completion of the balance sheet for a specified period but before the company’s full set of financial statements is prepared. Subsequent events clarify information about a business’ financial picture as reflected by the balance sheet, a financial report that includes all transactions through the report date. The Financial Accounting Standards Board, the authority entrusted with establishing generally accepted accounting principles, publishes detailed requirements for defining and recording subsequent events in financial records. Adjusting Event or Post Balance...
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...enterprise striving to achieve predetermined objectives, business processes are identified and defined. To ensure the proper completion of process work, procedures are defined, documented and established. Business procedures need to be properly controlled to ensure smooth completion. Out-of-control procedures are expensive; therefore, controls need to be in place. These controls can be preventive, detective and/or corrective in nature. However, the adequacy of controls over procedures depends on various factors, including a balance between costs incurred for implementing controls and the resulting benefits derived. Many controls are essential overheads for the business, and therefore, their effectiveness must be reviewed periodically. Internal audit of controls, an essential overhead, helps avoid relaxation on controls. Ultimately, the control overheads constitute a major expenditure item. Assurance that the controls are in place and effective is essential. This assurance can be given through control self-assessment (CSA), also referred to as control self-assurance. Systems and procedures for many business organizations within various sectors have evolved over time. For example, banking is the oldest service sector and the controls over banking procedures are essential not only for the bank, but also for society in general. Controls in banking procedures have also evolved over time; however, adoption of information technology by banks has prompted changes in banking operations, which...
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