...AUDIT RISK MODEL Audit Risk (AR): risk that auditor will opine (render an opinion) with an unqualified opinion when unknown to auditor, FS are materially misstated (ultimate risk) Inherent Risk (IR): risk that errors (or misstatements or deviations) will occur," clientcontrolled Control Risk (CR): risk that client's internal control system will fail to prevent/ detect/correct errors ... clientcontrolled Detection Risk (DRI_ risk that auditor's procedures will fail to detect errors ... auditorcontrolled AR IR * CR * OR Audit risk = inherent risk * control risk * detection risk Audit risk: always set priority at a low level (.0 1, 05, 10) Inherent risk: controlled by client ... function of type of business, degree of liquidity, complexity Control risk: controlled by client ... relates to effectiveness of client's control system in preventing, detecting, and correcting errors. Detection risk: controlled by auditor ... function of nature, timing, and extent of audit procedures applied ... allowable or acceptable Solution Set: (1) Detection risk = audit risk / (inherent risk * control risk) (2) Detection risk low ... the more evidence you have to collect (3) Detection risk high ... the less evidence you have to collect Audit Risk: risk that auditor issues unqualified opinion when statements are materially misstated, audit risk and detection risk exactly related. IR/CR and detection risk...
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...AND PREVENTING THE RISK OF A TAX AUDIT 1 The Process and Preventing the Risk of a Tax Audit By Marivic Engquist National American University August 12, 2012 THE PROCESS AND PREVENTING THE RISK OF A TAX AUDIT 2 Abstract This paper illustrates how an Internal Revenue Service (IRS) audit strikes fears in individuals, small businesses and large corporations. By understanding the process of a tax audit and reporting information that is understandable, people can lesson some of the risk. According to Sidney Weisman, an attorney and senior editor with the Research Institute of America, publisher of tax materials for professionals, “the easiest way to survive a tax examination is to prepare for one at the time you fill out the tax return” (Rankin, 1981, p. 2.29). THE PROCESS AND PREVENTING THE RISK OF A TAX AUDIT 3 The Process of Lessoning the Risk of a Tax Audit The tax audit have been feared by many and embraced by the few. Even though there are ways to reduce the likelihood of an audit, one must understand how the audit process works. If selected, a tax audit usually means corresponding with the IRS, searching through files, and producing records. It can also mean paying additional taxes, interest, or a penalty. Reducing the likelihood of an audit, all income and deductions must...
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...more than a paragraph. 1. What was the significant of the McKesson & Robbins case? It redefined some auditing standards. Prior to this case, auditors had no responsibility to verify inventory. As a result of the McKesson & Robbins case, it was determined that auditors should extend verification beyond “the books” to establish the actual existence of the assets and liabilities shown on the balance sheet. Confirmation of receivables and observation of physical inventory became mandatory audit procedures. 2. Briefly describe an American audit at the turn of the 19th to the 20th century. Bookkeeping was only briefly reviewed while the balance sheet and verification of current assets/liabilities was the main focus. The audits at the turn of the 19th – 20th century were basically a certification of balance sheets to be used by bankers to determine the credit worthiness of applicants. 3. Discuss how and why a CPA firm might screen potential audit clients. Before accepting new clients, the CPA firm should investigate the potential clients to determine acceptability (integrity, knowledge of client industry, other business risks). This can be done by: * Communication w/ predecessor auditor * Gathering info from local attorneys, banks, other businesses * Talk to clients, customers, vendors * Interview management/employees * Hire professional investigator 4. List and discuss management assertions related to an account balance...
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...ENVIRONMENTAL and SOCIAL RESPONSIBILITY REPORT Climate and Environmental Responsibility Fuel Efficiency Program Alternative Fuels Environmental Management Waste Management Social Responsibility Occupational Health and Safety Flight Safety Supply Chain Social Responsibility Projects ENVIRONMENTAL and SOCIAL RESPONSIBILITY REPORT It is Turkish Airlines’ responsibility to act and promote sustainability as a commitment to the environment. A. Fuel Efficiency Program In the beginning of 2008, Turkish Airlines started a collaborative study with IATA Green Team and has begun implementing a Fuel Efficiency Program aimed at increasing fuel efficiency and reducing the carbon emissions. The program involves measuring and monitoring of fuel efficiency initiatives and reporting to the Fuel Steering Committee which consists of competent and dedicated personnel from key departments such as Flight Operations, Flight Planning and Dispatch, Engineering and Maintenance, Finance, Marketing and Sales. The initiatives undertaken within the program to increase fuel efficiency and to reduce carbon footprint could be gathered under the umbrella of below topics: 1. Optimizing the operations: Since 2008, more than 70 projects to optimize operations in order to reduce carbon footprint have been introduced and implemented. Some of these operational optimization projects include: Pilot technique, optimizing the use of APU (auxiliary power unit)...
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...TEAM B TEAM B ------------------------------------------------- Assessing Materiality and Risk Simulation University of Phoenix ACC/491 Dwayne Thompson March 10, 2013 ------------------------------------------------- Assessing Materiality and Risk Simulation University of Phoenix ACC/491 Dwayne Thompson March 10, 2013 The objective of the audit of financial statements is to enable the auditor to express an opinion if the financial statements are prepared in accordance with an identified financial reporting framework. The reason that materiality is allocated to those accounts sampled because materiality represents the magnitude of an omission or misstatement of an item in a financial report. The three function of the audit risk are inherent risk (IR), control risk (CR), and detection risk (DR). Every level of audit risk has an opposite connection that exists between assessed levels of controls, inherent risk, and level of detection risk Why do certain accounts have to be audited 100%? Accounts need to be audited 100% so the users of the financial statements can rely on the information and be able to make decisions for investment purposes. It also helps management make sure the company is profitable as well as following rules and regulations of the accounting standards and policies. Auditing accounts are done to protect the investors, shareholders, banks, and to give assurance that the information...
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...ATTACHMENT A: GENERIC TRAINING PLAN EY Zimbabwe – 2013 Instructions for completion · This is a generic training plan for ONE hypothetical trainee · All applicants must complete all the sections TRAINING PLAN Elective: Auditing & Assurance Residuals: Taxation Management Decision-Making & Control Financial Management Internal Audit, Risk Management and Governance COMPULSORY SKILLS BUSINESS ETHICS Mode through which competence will be achieved (i.e. practical experience/ simulation Competency to be achieved BE(C) Acts ethically and in accordance with the rules of professional conduct Tasks to be performed BE(C)1 Displays honesty and integrity BE(C)2 BE(C)3 BE(C)4 BE(C)5 BE(C)6 BE(C)7 BE(C)8 Carries out work with a desire to exercise due care Maintains objectivity and independence Avoids conflict of interest Protects the confidentiality of information Maintains and enhances the profession’s reputation Adheres to the rules of professional conduct, including the ICAZ Code of Professional Conduct Identifies and adequately responds to potential ethical dilemmas Examples of activities to be performed by trainees to gain exposure to this competence E&Y Firm values – Our shared values inspire our people worldwide and guide them to do the right thing, and our commitment to quality is embedded in who we are and in everything we do. Our values define who we are · · · People who demonstrate integrity, respect and teaming People with energy, enthusiasm and the courage to lead People who...
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...Internal Control Audit Risk Assessment: Auditing is fundamentally a risk management process. Audit risk is related to information risk that financial statements are materially misstated. -lower audit risk by performing more audit work that will give them a high level of assurance that the financial statements are correct. 1) INHERENT RISK (IR)- the probability of material misstatement occurring in transactions entering the accounting system or being in the account balances. Auditors do not created or control inherent risk. Can only assess its magnitude based on prior experiences, management bias, and the nature of the transaction. Look at characteristics of clients business, types of transactions, and effectiveness of accountants. 2) CONTROL RISK (CR): risk that the clients internal control system will not prevent or detect a material misstatement. Auditors do not create control risk, they assess probability of failure to detect material misstatements. Assessment is based on study and evaluation of the company’s control system. **Control risk should not be assessed so low that auditors rely entirely on controls and do no substantive work. 3) DETECTION RISK (DR): the risk that any material misstatement that has not been corrected by the clients internal control will not be detected by the auditor. **Auditors can control this risk by conducting substantive (balance audits) tests. (include: audit of details of transactions and balances, and analytical procedures applied to dollar...
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...1-36 a. The objectives of an independent audit. Because audits involve examinations of financial information by independent experts, they increase the credibility of the information contained in the statement. Decision makers both within and outside the organization can use audited financial information with confidence that it is not likely to be materially misstated. And also they reduce the overall risk of making various types of economic decisions. The nature and emphasis of auditing has changed over the years. Auditing began with the objective of detecting fraud by examination of all, or most, business transactions. Today the objective of an audit is to attest to the fairness of the financial statements. Because of the large size of business organizations, audits necessarily involve the use of sampling techniques based on the auditor's consideration of the organization's controls. b. Identify five ways in which an independent audit may be beneficial to Feller. 1. Improve the internal control. 2. Increase the credibility of information in the statement. 3. Reduce the overall risk of making various types of economic decisions. 4. Not only has internal auditor, but also has external auditor. 5. Provide the require information to external user. 1-37 Evaluate the opposing views expressed by Peters and Ferrel. For Peters, he thinks CPA should be independent from social activities. Because CPA must be fair and objective, if a CPA has closed...
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...Chapter 9 - Materiality and Risk ← Multiple Choice Questions From CPA Examinations 9-22 a. (4) b. (4) 9-23 a. (1) b. (1) c. (1) 9-24 a. (2) b. (3) c. (1) 9-25 a. The justification for a lower preliminary judgment about materiality for overstatements is directly related to legal liability and audit risk. Most auditors believe they have a greater legal and professional responsibility to discover overstatements of owners' equity than understatements because users are likely to be more critical of overstatements. That does not imply there is no responsibility for understatements. b. There are two reasons for permitting the sum of tolerable misstatements to exceed overall materiality. First, it is unlikely that all accounts will be misstated by the full amount of tolerable misstatement. Second, some accounts are likely to be overstated while others are likely to be understated, resulting in net misstatement that is likely to be less than overall materiality. c. This results because of the estimate of sampling error for each account. For example, the likely estimate of accounts receivable is an understatement of $7,500 + or - a sampling error of $11,500. You would be most concerned about understatement for accounts receivable because the estimated understatement of $19,000 exceeds the tolerable misstatement of $18,000 for that account. d. You would be most concerned about understatement amounts since the total estimated understatement...
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...Jessica Ganyuma Audit Planning and Control Professor: August 23, 2015 Ernst & Young is an accounting firm founded by Arthur Young (1863-1948) and Alwin C Earnest ((1881- 1948). Alwin started Ernst and Ernst with his brother Theodore in 1903. Arthur formed his accounting firm with his brother Stanley named Arthur Young and Company in 1906. Both companies were a success and quickly emerge into the global marketplace. Around 1924 both firms “ allied with prominent British firms”( ). Ernst and Young never met one anther and died days of each other. Their firms combined in 1989 forming Ernst &Young. Ernst & Young provides audit, tax, business risk, technology and security risk services and human capital services worldwide. Ernst & Young is one of the “Big Four” accounting firms. The company has over 190,000 employees and operates in over 150 companies. There are steps in planning an audit and designing an effective audit program. When it comes to planning the auditor must first decide whether or not to accept a new client. The audior must identify “ whey the client wants or needs and audit” (p 209). The auditor must obtain an understanding with the firm about the terms of engagement to avoid any misunderstanding and the auditor must develop “an overall strategy for the audit, including engagemetnet staffing and any required audit specialists” (209). When it comes to designing an effective audit program the auditor...
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...guidance about an aspect of nonprofit corporate governance in the specific and limited context of the governance questions contained in the new IRS Form 990 (published by the IRS in 2008 and applicable to 990 filers based on a 2009-2011 filing year phase-in period depending on the size of the nonprofit). It is intended to provide some general guidance on the establishment of processes and/or policies to address a specific governance question in the Form. The subject matter of that question implicates a broad array of legal and practical issues ranging far beyond the immediate subject matter of the question itself. This material may address some of those issues but does NOT attempt to review them comprehensively and is NOT intended to be relied on for guidance on how they should be addressed in any specific situation. Whether or not a nonprofit organization adopts a specific governance process or policy (or modifies an existing one), either in response to the disclosure requirements of the new IRS Form 990 or to change its governance practices for other reasons is a matter to be carefully considered by that organization, with input from its board and advisors and evaluation of its specific circumstances. The IRS has explicitly stated that adoption of the policies and practices about which the new Form 990 asks is not mandatory, although the IRS has also indicated that it attaches significance to the manner in which all tax-exempt nonprofit organizations govern themselves. These...
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...ACCOUNTING POLICIES AND PROCEDURES MANUAL Adopted May 20XX TABLE OF CONTENTS 1.00 BACKGROUND INFORMATION 1.01 Tax Status and Purpose 1 1.02 Service Area 1 2.00 CHART OF ACCOUNTS 2.01 Assets 2 2.02 Liabilities 2 2.03 Net Assets (Fund Balance) 2 2.04 Revenues 2 2.05 Expenses 2 2.06 Cost Centers 2 3.00 ACCOUNTING PRINCIPLES AND PROCEDURES 3.10 Policies 3 3.20 Procedures 3.21 Revenue Recognition 3 3.22 Matching of Revenues and Expenses 3 3.23 Fixed Assets and Depreciation 3 3.24 Donated Materials and Services 4 3.25 Data Cutoff 4 4.00 CASH DISBURSEMENTS 4.10 Policies 5 4.20 Procedures 4.21 Capital Acquisitions 5 4.22 Supplies, Services, and Other Invoices 5 4.23 Invoice Payment Procedures 6 4.24 Payroll 6 5.00 CASH RECEIPTS 5.10 Policies 7 5.20 Procedures 7 6.00 BANK RECONCILIATION 6.10 Policies 8 6.20 Procedures 8 7.00 END OF MONTH ACCOUNTING PROCEDURES 7.10 Policies 9 7.20 Procedures 9 8.00 END OF YEAR ACCOUNTING PROCEDURES 8.10 Policies 10 8.20 Procedures 10 8.21 Financial Audit 10 9.00 COST ALLOCATIONS 9.10 Policies 12 TABLE OF CONTENTS (continued) 10.00 INVESTMENTS 10.10 Policies 13 10.20 Procedures 13 11.00 DEBT 11.10 Policies 14 11.20 Procedures 14 12.00 RESERVES AND DESIGNATED FUNDS 12.10 Policies 15 12.20 Procedures 15 13.00 INTERNAL...
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...CPA Report Bambi Snyder ACC/545 December 16, 2013 Brooke Call CPA Report Memorandum To: Brooke Call, Management From: Bambi M. Snyder, CPA Date: 12/16/2013 ------------------------------------------------- Re: Professional Responsibilities of a CPA and the Difference between a Review and an Audit Professional Responsibilities of a CPA There are many professional responsibilities a CPA acquires when they accept the CPA license and a job position. As you may know, there have been many news reviews that have given the CPA name a bad reputation. The largest CPA scandal was the Arthur Anderson and Enron scandal in 2002. Unethical and illegal actions played a large role in the said scandal which in turn resulted in many people losing their investments in Enron and many employees being prosecuted by the criminal court system. One of the major responsibilities of a CPA is to remain and act ethical inside and outside of the business. Confidentiality is a major ethic hassle many CPAs have had a difficult time with. The information in a company is vital to the operations of the company. Leaking the vital information to the public or to the company’s competitors is an unethical action. When a CPA is hired by a company to review the financial statements of a company, which is their only job they must do. Preparing income tax refund papers, giving tax advice, or any other information to the management of the company is against the scope of practice what the CPA was hired...
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...policy and the pro bono attorneys who represent them. This form is annotated with explanatory endnotes, including citations to applicable laws, alternatives and recommended practices. For further instructions on how to use this form, how to create a policy that will allow a corporation to answer “yes” to Section VI, Question 13 on the revised Form 990, and how to implement this governance policy, please see the endnotes. Public Counsel will update this form periodically for changes in law, recommended practices and available resources. For the latest version, see www.publiccounsel.org/practice_areas/community_development. Important Notes: In creating any governance policy, it is very important that a nonprofit corporation institute procedures that the corporation is likely to be able to comply with consistently in the long term. Therefore, this sample should be used only after carefully considering every provision, and a corporation should not adopt any provisions that will be too burdensome for the corporation to follow given its circumstances. A governance policy will not protect a corporation from liability if it is not followed, and in some cases, a failure to consistently follow a written policy may more likely result in a finding of liability for the corporation than if no written policy existed. Please see the first endnote for more information. This form should not be construed as legal advice. Please contact an attorney for legal advice about your organization’s...
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...job requirements of an IRS agent. The information will be separated into several categories; necessary qualities, prior experience, and daily duties. Mrs. Angela Overstreet, IRS agent, happily helped our team gather information regarding the daily demands of her job. Necessary Qualities Internal revenue agents not only need the basic skills required to perform auditing, but agents also need important qualities such as integrity and commitment. A wide variety of skills are needed to perform audits at an efficient level. IRS agents must be dedicated to their work and willing to work with other to accomplish tasks. Communication skills: IRS agents will be in contact with their co-workers, management, and customers. Customers will be comprised of high-ranking members of companies tax departments. Must be able to communicate effectively with specialized tax language. Analytical skills: IRS agents will be examining income, sales, and excise tax returns for large and small corporations. Agents will be searching for any problems with these returns. Must be knowledgable with tax information and able to spot discrepancies in returns. Organization skills: Agents will be handling large amounts of tax returns, records, and tax laws. Agents will deal with multiple corporations returns and cannot mix records. Must be able to keep an orderly workplace. Computer skills: In today’s world, technological improvements have increased efficiency in the IRS. Agents will need to...
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