Board risk of committees and audit pricing - MyAssignmenthelp.com

Questions: What are the responsibilities of the client management, company directors and auditors, in relation to internal controls? Explain the impact of the auditors understanding of internal controls on the audit strategy? Identify three internal control activities in Caromas sales and accounts receivable areas. For each control identified in (1) above, explain how the control prevents or detects material misstatements? Identify key assertions addressed by each controls have identified in (1) above. Identify three internal control weaknesses in the processing of transactions of Caromas sales and accounts receivable area. For each control weakness you have identified in (4) above, identify at least one account balance at risk of material misstatement. For each account balance at risk of material misstatement, identify key financial report assertion at risk. Answers: Answer 1 It is seen that the responsibility of the clients financial reporting control is seen to consider the control environment risk as per the assessment process, information system and control activities related to the audit process. This particular aspect is further seen to be related to the monitoring controls (Sun and Liu 2014). Answer 2 The auditor verifies the understanding of the overall risks of the process of the company for selecting and testing of the controls which will be able to adequately answer the risk of misstatement to each relevant assertion. Understanding of the flow of the transactions are depicted with relevant assertions. This is seen to include the transactions which are initiated, authorized, processed, and recorded appropriately. The understanding is further seen to be conducive for identifying the potential misstatements and the factors related to the unauthorized acquisition use of the assets of the company. The auditor needs to also understand the way IT affects the companys flow of the transactions (Boritz, Kochetova-Kozloski and Robinson 2015). Answer 3 The three internal controls in the Caroma sales activities and accounts receivable areas are seen with: Pre- numbering of the sales invoice and producing more copies only based on it. Use of the sales invoice to make an entry in the sales journal and update the same in accounts receivable subsidiary ledger is seen to be conducive in terms of accounts receivable section Use of the sales invoice to make an entry in the sales journal and updating the same in sales ledger. Two officers are selected to receive the payment of the customers, they are responsible for checking the electronic bank receipts and record the receipts in the prelist Sales return and allowances are processed after the authorisation of the financial controller. The designated officers are responsible to match the receipts in terms of the remittance advice and forwarding the same to the accounts receivable officer (Cao, Li and Zhang 2015). Answer 4 Pre- numbering of the sales invoice prevents any conflicts pertaining to future sales returns which may take place due to excess quantity shipped, Excess quantity ordered, Goods shipped too late or Wrong items shipped The preparation of the sales invoice has been able to ensure the maintaining appropriate records which will be conducive in preventing any future possibility of material misstatements Authorisation of the financial controller for the sales return and allowances are seen to be based on control measures which will be able to match the relevant items put forward for sales returns The updating the accounts receivable journal has been conducive to prevent any sort of material misstatement in the which may take place in the accounts receivable ledger Checking the electronic bank receipts and record the receipts in the prelist is seen to be able to provide the assistance regarding the cash in bank and other liquid assets Matching the receipts in terms of the remittance advice and forwarding the same to the accounts receivable officer is seen to be helpful for recording the appropriate remittance which are made in advance (Hines et al. 2015) Answer 5 The main assertions addressed with each control have been identified as follows: The necessary assertions need to be maintained as per making the necessary changes in the sales invoice Sales journal and sales ledger needs to be addressed for making use of the sales invoice The necessary adjustment for the sales return and allowances needs to be made in the sales account and sales return account Accounts receivable subsidiary ledger needs to be updated appropriately for using of the sales invoice to make an entry in the sales journal The electronic bank receipts and record the receipts in the prelist needs to be maintained in the cash flow statement Remittance advice and forwarding the same needs to be ensured in the accounts receivable (Gunin-Paracini, Malsch and Paill 2014) Answer 6 The three internal control weaknesses in the processing of transactions of Caromas sales and accounts receivable area are stated below as follows: Inappropriate sales prices, discounts and credits Sales being incorrectly recorded or not recorded Non-receiving of the payments (Rahmina and Agoes 2014) Answer 7 The account balance risk for sales prices, discounts and credits has been considered with range of discounts offered without the management approval In case the sales were manually entered, there may be several instances associated to prenumbering of the invoices The non-receiving of the payment is needed to ensure that the receivables are credited and corrected on the customers account receivable (Amir, Kallunki and Nilsson 2014) Answer 8 The key financial report assertion of the risk needs to be taken into consideration with appropriate discounts and credits which will be prevent any instance of further material misstatement The manual entry of the sales data need to ensure with maintaining an appropriate Accounting Information System, this will be able to ensure proper numbering of the invoices The non-receiving of payment needs to be maintained by issuing a continuous reporting method which will be able to prevent any delay in the customers account receivable account (van Buuren et al. 2014) Reference Amir, E., Kallunki, J. P. and Nilsson, H. (2014) The association between individual audit partners risk preferences and the composition of their client portfolios, Review of Accounting Studies, 19(1), pp. 103133. doi: 10.1007/s11142-013-9245-8. Boritz, J. E., Kochetova-Kozloski, N. and Robinson, L. (2015) Are fraud specialists relatively more effective than auditors at modifying audit programs in the presence of fraud risk?, in Accounting Review, pp. 881915. doi: 10.2308/accr-50911. van Buuren, J., Koch, C., Amerongen, N. van N. and Wright, A. M. (2014) The use of business risk audit perspectives by non-big 4 audit firms, Auditing, 33(3), pp. 105128. doi: 10.2308/ajpt-50760. Cao, L., Li, W. and Zhang, L. (2015) Audit mode change, corporate governance and audit effort, China Journal of Accounting Research, 8(4), pp. 315335. doi: 10.1016/j.cjar.2015.05.002. Gunin-Paracini, H., Malsch, B. and Paill, A. M. (2014) Fear and risk in the audit process, Accounting, Organizations and Society, 39(4), pp. 264288. doi: 10.1016/j.aos.2014.02.001. Hines, C. S., Masli, A., Mauldin, E. G. and Peters, G. F. (2015) Board risk committees and audit pricing, Auditing, 34(4), pp. 5984. doi: 10.2308/ajpt-51035. Rahmina, L. Y. and Agoes, S. (2014) Influence of Auditor Independence, Audit Tenure, and Audit Fee on Audit Quality of Members of Capital Market Accountant Forum in Indonesia, Procedia - Social and Behavioral Sciences, 164, pp. 324331. doi: 10.1016/j.sbspro.2014.11.083. Sun, J. and Liu, G. (2014) Audit committees oversight of bank risk-taking, Journal of Banking and Finance, 40(1), pp. 376387. doi: 10.1016/j.jbankfin.2013.12.015.