Risk Assessment and Responsibilities
The risk management process involves detecting and managing threats and significant hazards that are present or likely to occur within the organization leading to negative impacts. The primary purpose of risk assessment is to help managers decide control measures that can alleviate or control the risk to an acceptable level (Knechel & Salterio, 2016) . The evaluation has to be conducted by a trained, skilled, and experienced person. It is mostly performed by auditors to understand the current environment surrounding the organization, and also the internal and external control.
Risks and support for whistle-blowers.
In most cases, whistleblowing is among the most common way that an organization's management receives information on issues such as criminal activity, fraud, cover-ups, and rule-breaking before there is further damage. Whistle-blowers are prone to several risks, which include mistreatment by colleagues once they are identified. Where organizations support anonymous reporting, then there must be clear guidance on how the reports will be handled and how this process fluctuates from the credited confidential reporting. Although whistleblowing can damage relationships among workers, the organization must be ready to listen and act.
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Reacting to red flags in Auditing.
The presence of two or more flag warning signs raises suspicion to the responsible person, and they might demand an in-depth examination. The presence of complaints is among the best way to identify fraud. Recurring complaints from employees regarding a specific issue should not be taken lightly, and the management should dig further. Additionally, inventory shortage happens once in a while, but excessive shrinkage of internal products can be a sign of a plethora of activities ( Pritchard & PMP, 2014) . There is also the issue of rounded-amount invoices and abnormal invoice volume, which can be monitored by assessing vendor invoice volumes.
Environments that promote fraud.
Several factors contribute to fraudulent activities
Inefficient management information systems.
Lack of adequate internal controls.
Recurrent misunderstandings among employees.
Misunderstandings between employees and management or third parties.
Management override of internal control.
Reliance on external audit departments.
In cases such as not having an internal audit department that reports to a Finance Director, signals of fraud will be ignored. If the management structure is excessively complex, there is a probability of obfuscating revenue streams, thus hiding the reality from third parties. There are also issues such as poor accounting controls, poor moral direction, and arrogance.
Crucial Factors in Assessing Internal Controls
Internal controls refer to undertaking procedures that increase the probability of reaching management goals by conducting efficient operations, compliance with regulations, and also reliability of financial reporting. Among the crucial factors include:
Risk assessment: involves identifying activities or circumstances that can prevent the organization from achieving its objectives and how these risks can be mitigated.
The control environment is made up of factors such as ethics, operating style, competence, integrity, and management philosophy, and they set the organization’s tone.
Control activities are conducted by the organization to ensure that there is submission with sound business practices, which include transaction reviews and approval, policies and procedure development, account reconciliation, and segregation of duties.
Monitoring activities; involve frequent or periodic monitoring, supervising, and management activities to ensure projects are working as expected, and quality performance is applied in addressing problems.
Information and communication; involve the timely transmission of data to the right people for them to be able to discharge their duties effectively.
f) a) Control Deficiency
Control deficiency occurs once the operation of control limits the management from conducting their assigned tasks to avert misstatements on timely bases. If service is deficient, then the appropriately designed power does carry its functions effectively, or the individual responsible with the control is reluctant to enjoy the required authority to perform the inspection efficiently.
b) Significant Deficiency
Significant deficiency refers to a gap in power that will negatively affect the ability of the company to authorize, process, and initiate external financial data that meets the GAAP standards in a way that there is a remote possibility in detecting a misstatement.
c) A material weakness is a deficiency in which there is more than a slight probability that the annual financial statement of a material misstatement will not be detected either prevented.
g) Mitigating a Technology risk
Switching from supply chain management that is paper-based to an electronic system can increase the chances of fraudulent transaction risk. However, this risk can be mitigated by improving some processes like credit scoring and automated underwriting that provides an opportunity to acquire credit cards, mortgages, and business loans from a wide range of financial institutions (Knechel & Salterio, 2016) . Lenders are also capable of assessing the price credit risk that allows credit extension to many borrowers. Procedures of storing safely or securely destroying information that is no longer required are also essential, and even the application of a dynamic password system can help.
h) Importance of analytical plan
Auditors perform analytical procedures that include analyzing both financial and non-financial information like the total number of employees in the organization ( Pritchard & PMP, 2014) . The planning stage, testing stage, and completion stage are included in the analytical process. The planning stage help the auditor locate issues that need special consideration like possible misstatement. In the testing phase, auditors collect appropriate audience evidence. Auditors can highlight potential errors, and the detailed test is reduced. The completion stage is used in reviewing the financial statement and writing conclusions about the financial statements.
i) Purpose of bank confirmations.
Bank confirmations provide independent evidence highlighting the client’s record reliability. Through bank confirmations, the bank confirms the borrower’s eligibility to be loaned a certain amount, which can be used for a determined purpose. They also give corporate guarantee information, which is displayed in financial statements on some occasions. Finally, the auditor is responsible for sending bank confirmation requests. An audit firm controls the procedure of submitting a confirmation request and also receives the response.
j) Importance of Cash audit in auditing
A cash transaction audit is essential in that it confirms that the documented cash balance equals the cash on hand. It also ensures that the disbursement of funds is duly authorized and recorded. Processes of cash audit determine the number of individuals handling money at the collection points. The auditor has several objectives while conducting a cash audit, which includes identifying cash balances, developing an effective audit plan, and designing and implementing an audit program for cash.
k) Importance of Audit recommendations to organizations
Audit recommendations correct problems and also highlight the causes of the issues. The effectiveness of an audit firm can be measured by the types of problems it handles and the kind of improvements the firm can affect. The quality of recommendations depends on the achievements of results, the auditor’s commitments to the need for action, and aggressive monitoring to ensure that recommendations are implemented (Li, 2014). All suggestions will need to follow up, but serious proposals that deal with flagrant matters require special attention. Committed auditors will insist on specific recommendations since they also make their work easier.
References
Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk . Routledge. Li, W. (2014). Risk assessment of power systems: models, methods, and applications . John Wiley & Sons.
Pritchard, C. L., & PMP, P. R. (2014). Risk management: concepts and guidance . Auerbach Publications.
