...AUDITING RISKS Stacy Jones 07/29/2015 AC503: Advanced Auditing Prof: Cynthia Waddell Audit Risk is the risk that an auditor expresses an inappropriate opinion on the financial statements. Audit risk may be considered as the product of the various risks which may be encountered in the performance of the audit. In order to keep the overall audit risk of engagements below acceptable limit, the auditor must assess the level of risk pertaining to each component of audit risk. Audit risk may be considered as the product of the various risks which may be encountered in the performance of the audit. In order to keep the overall audit risk of engagements below acceptable limit, the auditor must assess the level of risk pertaining to each component of audit risk. The model is: Audit Risk = Inherent Risk x Control Risk x Detection Risk Inherent Risk is one of the major items or topics that are a part of auditing and here is what I have found. It is considered to be a risk of material misstatement in the financial statements arising due to error or omission as a result of factors other than the failure of controls. Factors that may cause a misstatement due to absence or lapse of controls are considered separately in the assessment of control risk. Inherent risk is also generally considered to be higher where a high degree of judgment and estimation is involved or where transactions of the entity are highly complex. Inherent risk in the audit of a newly formed ...
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...How does audit risk turn into audit failure? This paper will focus on the relationship between the two. To do this one must understand how these two concepts differ. When the difference is understood, one must then understand how these two concepts relate, but first one must understand what they are individually. PCAOB.org defines audit risk as ‘the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated’. Basically what this means is that audit risk is the risk that the auditor will come to the wrong conclusion based on wrong financial statements. In my opinion, in the middle of these two concepts is the audit risk model. It is the… The audit risk model explains 2 main important things. The first thing is what amount of risk the auditor is willing to accept. It also says how much evidence the auditor will need. Let us turn our focus to audit failure. Audit failure is what happens when the auditor issues an incorrect audit opinion because [he or she] has failed to comply with the requirements of auditing standards, according to Arens, Beasley, and Elder. In other words audit failure happens when an auditor reaches an incorrect opinion about the financial statements because the auditor her, or himself handled the audit requirements carelessly. Audit failure can be a very, very broad and ambiguous concept. It can range from something simple to something convoluted. The main idea about these two concepts is...
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...IT AUDIT - INFORMATION SYSTEM AUDIT - INFORMATION SECURITY ASSESSMENT IT AUDIT is an independent and systematic exercise of assurance (according to standards or as per the company's defined policy) of the IT environment under study or the business application, in order to give reasonable assurance that controls over IT processes have been implemented in such a way the company can achieve its objectives effectively (using available resources optimally) and efficiently (in terms of performance), controls of which should prevent, detect or correct any undesirable event that can negatively impact the company. The measure of conformity (or not) of existing controls should be supported by the evidence that the auditor should collect and assess for reasonability, completeness and reliability. For items requiring improvements, he/she should suggest recommendations for improvement. IT AUDIT can be done at the level of an IT system or at the level for example of the responsibilities assignment procedure for the execution of a given IT process. IT Risk Assessment on the other hand seeks to identify and evaluate (quantitatively or qualitatively) the risks and vulnerabilities in the audited element and recommend measures according to best practices in order to eliminate or reducing the risk at an acceptable level. In any audit exercise, a preliminary thorough risk assessment (that culminates into drafting the audit plan) precedes the actual audit tasks. More so when the IT...
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...Audit Risk Audit Risk is defined as the possibility in which an audit fails to uncover material misstatements, whether due to error or fraud. There are three components that make up audit risk; Inherent Risk or the natural risk a company faces, Control Risk or the risk that the internal controls do not catch and rectify a misstatement, and Detection Risk or the probability that auditors fail to detect misstatements, whether due to error fraud. These three keys rely on each other to decrease the overall audit risk to the lowest level that can provide “reasonable assurance about whether the financial statements are free of material misstatement due to error or fraud” (AU 312). To attempt to completely eliminate Audit Risk would be inefficient and would take far too long. This would ultimately pass the point of diminishing return. Even after a significant amount of testing the complete population you cannot be sure there are no misstatements. Management override can still be present and it is a serious concern because they have so much access as the head of their companies. This was the case recently when Peregrine Financial Group, Inc., was exposed as a multi-year $215 million fraud. Simply put, The CEO, Russell Wasendorf, faked bank addresses. The auditors, following generally accepted auditing standards, sent confirmations directly to these addresses. The returned confirmations were forged by Wasendorf. The guidelines were followed but there is always room for management...
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...a Solutions for Chapter 4 Audit Risk, Business Risk, and Audit Planning Review Questions: 4-1. Business Risk - Those risks that affect the operations and potential outcomes of organizational activities. Engagement Risk - The risk auditors encounter by being associated with a particular client: loss of reputation, inability of the client to pay the auditor, or financial loss because management is not honest and inhibits the audit process. Financial Reporting Risk - Those risks that relate directly to the recording of transactions and the presentation of financial data in an organization’s financial statements; also referred to as the risk of material misstatement. Audit Risk - The risk that the auditor may provide an unqualified opinion on financial statements that are materially misstated. 2. Business risk management is defined as: “Process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risks to within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.” (COSO, 2004) The organization itself bears the responsibility for effective implementation of ERM. It is important for all organizations to implement an effective ERM so that risks are understood and properly controlled by members of the organization, particularly...
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...Enterprise Risk Assessment, Audit, and Cyberlaw Enterprise Risk Assessment, Audit, and Cyber law Enterprise Risk Assessment “Today’s business world is constantly changing—it’s unpredictable, volatile, and seems to become more complex every day. By its very nature, it is fraught with risk.” (PWC, 2008) Risk assessment provides us with a process which enables us to identify which risks symbolize opportunities and which represent possible dangers. Correctly performed, a risk assessment gives organizations a clear assessment of variables to which the organization could be exposed to, these could be indemnified either as internal or external, retrospective or forward-looking. A company faces many issues when it comes to operating a business; they included risks such as IT risks, operations risk, financial risks, strategic market risks, legal risks, reputation risks, and human capital risks. For the risk assessment to provide significant finding, certain important values should be considered. Your organization’s objectives that drives your values should be considered at the beginning and end of this risk assessment. These objectives offer the basics for determining the effectiveness and probability of your organization’s risk rating. Control throughout the assessment process need to be clearly known and followed to nurture a holistic approach and a portfolio view—one that will provide you the best responses based on the organization’s risk ratings...
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...Enterprise Risk Assessment, Audit, and Cyberlaw Enterprise Risk Assessment, Audit, and Cyber law Enterprise Risk Assessment “Today’s business world is constantly changing—it’s unpredictable, volatile, and seems to become more complex every day. By its very nature, it is fraught with risk.” (PWC, 2008) Risk assessment provides us with a process which enables us to identify which risks symbolize opportunities and which represent possible dangers. Correctly performed, a risk assessment gives organizations a clear assessment of variables to which the organization could be exposed to, these could be indemnified either as internal or external, retrospective or forward-looking. A company faces many issues when it comes to operating a business; they included risks such as IT risks, operations risk, financial risks, strategic market risks, legal risks, reputation risks, and human capital risks. For the risk assessment to provide significant finding, certain important values should be considered. Your organization’s objectives that drives your values should be considered at the beginning and end of this risk assessment. These objectives offer the basics for determining the effectiveness and probability of your organization’s risk rating. Control throughout the assessment process need to be clearly known and followed to nurture a holistic approach and a portfolio view—one that will provide you the best responses based on the organization’s risk ratings...
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...THE IMPACT OF INTERNAL AUDIT ROLE ON RISK MANAGEMENT IN UAE PHD proposal Presented to (Dr Puah Chin Hong) Faculty of Economics and Business University of Malaysia Sarawak Presented By Muhammad Usman Research Proposal for PHD Admission: Presented By Muhammad Usman Page 1 TABLE OF CONTENTS 1.0 2.0 INTRODUCTION BACKGROUND 2.1 2.2 2.3 2.4 3.0 4.0 A brief history of internal auditing The role of the internal auditor Role of the risk management function The internal auditor and the risk management process PROBLEM STATEMENT RESEARCH OBJECTIVES 4.1 Specific Research Questions 5.0 6.0 7.0 8.0 9.0 IMPORTANCE OF STUDY SCOPE OF STUDY RESEARCH DESIGN THE LITERATURE REVIEW DATA COLLECTION & SAMPLING 9.1 9.2 Survey by questionnaire and interviews Sample selection 10.0 11.0 DATA ANALYSIS REFERENCES Research Proposal for PHD Admission: Presented By Muhammad Usman Page 2 1.0 INTRODUCTION The audit function has been performed at least since the fifteenth century. However internal auditing has developed most rapidly throughout the twentieth century as a core tool of risk assessment. Today, in businesses worldwide, the internal audit function is becoming very important for achieving the objectives of organizations. In recent years, UAE market has recognized the importance of the internal audit function, which is why that function has been established in some public as well as private companies. These companies setup audit functions to deal with the assessment...
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...First name Last name Name of Course Name of Professor 12 November 2012 Brief Analysis of Asset-based Financing and Consequent Audit Risk The article by Robert A. Modansky and Jerome P. Massiminom mainly discusses the features and rationale of three asset-based financing methods-revolving lines of credit, purchasing order financing and factoring and further introduces how to account for them according to U.S. GAAP. Companies that are highly-leveraged or do not have the credit rating or track record to qualify for bank financing now find asset-based lending a pleasant choice instead of the financing option of last resort. The main difference between the asset-based lending and traditional types of banking is that asset-based financing is secured by an asset like trade account receivable, inventory or property and equipment not credit rather than credit ratings (Robert A. Modansky, Jerome P. Massiminom).The benefit of placing the borrower’s assets as collateral is that the borrower will receive a higher amount of maximum credit with a lower interest rate. Revolving lines of credit requires the borrower to grant a security interest in its receivables and inventory to lenders as collateral to secure the loan, which creates a borrowing base for the loan. It’s worth noting that not all receivables and inventory are eligible to constitute the borrowing base. For instance, receivables that are more than 90 days old and related party receivables would be ineligible (Robert A...
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...OPINION SURVEY OF THE FACTORS IMPACTING ON DIVIDEND POLICY OF FIRMS OPERATING IN THE FINANCIAL SECTOR OF MAURITIUS 1. In which sub-sector does your company operate in? Please tick the appropriate Banking Offshore Banking Insurance Re-Insurance Investment Leasing 2. Approximately how many employees work in your company? Please encircle the appropriate • Less than 10 • 10 – 19 • 20-49 • 50-99 • 100 and above 3. What type of dividend payout does your company distribute every year? Please encircle the appropriate • We do not pay dividend at all • We distribute a constant dividend pay out every year • We offer an increasing amount of dividend payments from year to year • We offer a decreasing amount of dividend from year to year • Our dividend payments fluctuates from year to year 4. Do you consider dividend policy to be important? Please tick the appropriate. Yes No 5. Why do you think a firm pays dividends? Please rate the following possible answers. (1=strongly disagree; 2=disagree; 3=no opinion; 4=agree; 5=strongly agree) • The payment of dividends encourages a firm’s managers to act in the interest of the firm’s outside shareholders. (…..) • The payment of dividends forces a firm to seek more external (debt or equity) financing, which subjects the firm to additional investor scrutiny. (…..) • Dividend policy plays an important role in determining...
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...Rwerewr;jjwe jrwie iojrowr eorjwr wijorj ieowrpir jiwr jworjowrioew rojweoweoirj wiroiewjiorowiej rowiwo jrowi joriwjowirjoiwrjoirirjoiwjriowr wowi roiwej riowj rowijoeiw jwoiejroiw owej rio jroierj lkfj iwoej ewoirfew fiwej rwe oijrwe roiw rjweo w ijwe weorj jkr wr er woeij owir jowie woirj e r r r r r r r rer jwpe rop wpeor pwerkpo oweropwe wprkoepk ropwe rpwekro r Rwerewr;jjwe jrwie iojrowr eorjwr wijorj ieowrpir jiwr jworjowrioew rojweoweoirj wiroiewjiorowiej rowiwo jrowi joriwjowirjoiwrjoirirjoiwjriowr wowi roiwej riowj rowijoeiw jwoiejroiw owej rio jroierj lkfj iwoej ewoirfew fiwej rwe oijrwe roiw rjweo w ijwe weorj jkr wr er woeij owir jowie woirj e r r r r r r r rer jwpe rop wpeor pwerkpo oweropwe wprkoepk ropwe rpwekro r Rwerewr;jjwe jrwie iojrowr eorjwr wijorj ieowrpir jiwr jworjowrioew rojweoweoirj wiroiewjiorowiej rowiwo jrowi joriwjowirjoiwrjoirirjoiwjriowr wowi roiwej riowj rowijoeiw jwoiejroiw owej rio jroierj lkfj iwoej ewoirfew fiwej rwe oijrwe roiw rjweo w ijwe weorj jkr wr er woeij owir jowie woirj e r r r r r r r rer jwpe rop wpeor pwerkpo oweropwe wprkoepk ropwe rpwekro r Rwerewr;jjwe jrwie iojrowr eorjwr wijorj ieowrpir jiwr jworjowrioew rojweoweoirj wiroiewjiorowiej rowiwo jrowi joriwjowirjoiwrjoirirjoiwjriowr wowi roiwej riowj rowijoeiw jwoiejroiw owej rio jroierj lkfj iwoej ewoirfew fiwej rwe oijrwe roiw rjweo w ijwe weorj jkr wr er woeij owir jowie woirj e r r r r r r r rer jwpe rop wpeor pwerkpo oweropwe wprkoepk ropwe rpwekro r Rwerewr;jjwe...
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...换一个你的 School of Management, University of Glamorgan Research on Internal Audit Participate in Risk Management-Based on the ERM Framework of COSO By: Weichen Zhu Candidate no: 学号 September 2012 Supervised by: 你导师的名字 The dissertation is submitted as part of the requirement for the award of Masters of Science: 你专业的名字 Declaration This Dissertation has been prepared on the basis of my own work and that where other published and unpublished source materials have been used, these have been acknowledged. Word Count: Student Name: __________________ Signature: ______________________ Date of Submission:______________ Acknowledgement This is my first time to go aboard for studying. During different campus life in the UK, it is wonderful with deep impression. I learned how to use my internal power to make things happen and how to live my own life. All efforts contribute to my growth, but I cannot forget people who encourage and help me. Probably, I am not happy to study in my whole postgraduate time without support. Firstly, I would like to thank my supervisor 你导师的名字. He helps me develop the ideas and complete this dissertation. Especially, when I make a survey in China, I communicate with him through email. Sometimes, I am afraid that my timetable could have bad effects on him. However, he usually gives me feedback as soon as possible. Therefore, I only use 20 days to finish my survey. This kind of strong professional ethic is worth to learn...
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...PROCESS 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...
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...“engagement risk.” What are the key factors likely considered by Deloitte and other audit firms when assessing engagement risk? How, if at all, are auditors’ professional responsibilities affected when a client poses a higher than normal degree of engagement risk? Engagement risk is composed of three broad categories: the entity’s business risk, the auditor’s audit risk, and the auditor’s business risk. Each subtopic has its corresponding factors in regards to an audit. * Entity’s Business Risk “Financial trends are the most important part of [an] entity’s business risk (Ethridge).” The main business risk of an entity is that their continuity is threatened. Furthermore, they may not be profitable to continue doing business in the future. As an example in this case, Ligand Pharmaceuticals’ stock price increased by 600% within one year ($4/share in early 2003 to $24/share in early 2004), despite not ever reporting an operating profit. Stock prices are a thin barrier to use, and the volatility of the market could cause Ligand to collapse due to insufficient funding. There is another example of entity business risk in the case where Ligand Pharmaceuticals had questionable accounting of its sales returns, because although wholesalers had the right to return any products, they did not “sell through” to their customers. An increase in return allowance could throw off the balance sheet as well as the stated income. “Special” treatment of accounts can mask or pad losses, so audit partners...
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...over the audit of Smackey Dog Foods, Inc. Solution: The SEC (Securities and Exchange Commission) has substantial influence on the audit of Smackey Dog Food, Inc. This can be seen in the audit standards that have to be followed by the established independence of the auditors involved in the Smackey audit. In the audit of public listed companies which includes Smackey, the auditors need to observe several principles. Independence is one of the six principles exhibited by the AICPA and the others include responsibilities such as the public interest, integrity, objectivity and independence, due care, and scope and nature of services. An audit team is required to be objective and independent with regard to professional responsibilities and by being independent in fact and appearance when providing auditing and other attestation services. Under the Sarbanes – Oxley, auditors have to be objective and independent otherwise legal sanctions can be pursued and incurred. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: The following are several essential activities involved in the initial planning of an audit and how they are specifically related to Smackey Dog Food, Inc. : 1. First understand the client’s business and industry. The audit firm can get the full benefit of its experience in auditing other food manufacturers in planning and doing the audit for Smackey...
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