Serving IT Governance Professionals

Question: Discuss about the Serving IT Governance Professionals. Answer: According to Australian Accounting Standards Board, AASB 108, provision for bad debts is an estimate made by the company and any changes in such estimates do not result in prior period items or correction of errors. Such change shall be recognised prospectively by the company in the period of change and in such other periods, which are materially affected. 1. It implies there should not be any retrospective amendments. It is very natural for such estimates to get revised with the period of time. The concern to be addressed is how willingly is the management willing to rectify such changes and estimates in its financial statements. In case of material misstatements, the auditor should revise the audit planning and perform additional procedures. The auditor should further communicate with the appropriate level of management and ask them to adjust. If the management adjusts, then ok else issue a qualified or adverse opinion in the audit report. 2. According to Australian Accounting Standards Board AASB 102, Inventory should be valued at cost or net realisable value, whichever is lower. In the given case, the retailer values inventory at sales less sales margin, which is Incorrect. Any valuation of the inventory at amounts not equal to the cost or net realizable value shall remain unacceptable and hence, void. Hence, the auditor should ask the management to adjust such discrepancy, else issue a qualified or adverse audit opinion. The auditor should also try to communicate with those charged with governance before making any decision and only if, the top managerial persons refuse to make the desired and proposed changes, the auditor should give a disclaimer/ adverse opinion. 3. The auditor should carefully analyse all the matters and activities which pose a significant impact on the businesss long term or the short term position. In the given case, the auditor should carefully study the impact of the main customer, as his impact on the business of The Block Company is material as he purchases 45% of the stock of the company. Any activity should be considered as material if it contributes to an increased proportion of the companys sales and revenues and thereby, profits. All the items of a business which are considered material should be dealt with with due diligence by the auditor and more attention has to be paid on such increasing or decreasing trends, as these pose to form a lawful audit evidence. The auditor should consider it as a material effect and make adequate disclosures about the same in his audit report. 4. According to Australian Accounting Standards Board, AASB 116, any property, plant or equipment, from which any economic future benefits are derived shall be measured and recognised at cost only. Any discrepancy shall not be considered as valid and correct. In the given case, the buildings would be valued and shown in balance sheet at the cost only, i.e. at $ 12 million. Hence, the auditor should ask the management to adjust such discrepancy, else issue a qualified or adverse audit opinion. Before making any decision, the auditor should effectively communicate with those charged with governance, and only if, the top managerial persons refuse to make the desired and proposed changes, the auditor should give a disclaimer/ adverse opinion. 5. According to Australian Accounting Standards Board, AASB 102, The inventories should be valued according to the First in first out method (FIFO) or the weighted average formula. Any discrepancy shall not be considered as valid and correct . Since the company refuses to change its cost formula to FIFO, as an auditor, you can give a qualified or adverse audit opinion. 6. According to ISACA (2009), U.S.A, the management of the company is responsible for the identification, disclosure and accounting of the related party transactions. If the auditor find that such related party disclosures are not being made, then, he should decide whether the financial statements of the company are misleading due to the above effects and if yes, then communicate it with those charged with governance and reflect in the audit report as qualified/ adverse opinion. The customer is provided only with the sales order number, and not handled any invoice. In such a case, the delivery person may try to take undue advantage of the firm and it would indirectly promote a means of committing fraud. As a remedy, the company should provide a copy of the invoice to the customer by online means, so that he is able to have a legal proof against the company in case of any default made by the company. The customer profile should be carefully evaluated before proceeding for cash on delivery orders. The customer profile over here would include the geographical location of the customer, feasibility of the company in delivering the products to such areas, the liquidity position of the customer and his past record. A proper analysis of the customers profile would help the company in analysis of any intentional inconvenience proposed to be made by the prospective customer. In the era of online marketing, there are many customers, who tend to easily place cash on delivery orders, but, at the time of such delivery, strictly refuse to make the payment or bear any costs incurred by the company for effecting such delivery. In such a case, the company becomes the victim and has to bear unnecessary avoidable costs. So, the company should take adequate precautions and beforehand, conduct an analysis of the customers profile. Not everyone interested should be allowed to place orders on a cash on delivery payment system. For an effective internal control system, both the cash department and the billing department should be handled over by two different managerial staffs, in order to reduce the possibility of intentional frauds by such staff. If both the departments are handled by a single individual, the particular individual might, either out of revenge for the business in which he works, or intending his personal gains, might indulge himself in activities which hamper the business ethics and policies and causes huge losses to the company. For example, if both the cash receipt department and the billing department are handled by a single person, then, he might give unreasonable discounts on purchase of the companys goods to one of his relatives and bill such amount at the unreasonable rate. This would result in losses to the profits of the business firm. If the transactions per day of the company consists of huge amount of cash, then, instead of depositing it at the safe overnight, it should be deposited in the bank immediately, so as to ensure safety and prevent embezzlement of cash. Higher amounts of cash kept at the safe are more prone to thefts and frauds. If the company keeps such higher amounts at the locker safe overnight, adequate security staff should also have to be hired for the protection of such huge sums of money. it will not only lead to increased costs to the company, but, will also be a issue of reliability of such security staff. Also, the keys of the safe locker should be kept protected and safe. The staff manager should not be blindly relied upon, in case of cash deposits in the bank, the company should ensure that the director or any working member should assist the staff manager in depositing money at the bank. Due to the will of taking any past revenge from the firm, or with the intention of having his own personal gains, he can attempt to benefit himself and cause losses to the firm, by incorrect cash depositions, which is not in the favour of the firm. Hence, the firm should not excessively depend or trust on any individual/ group of individuals. References ISACA- Serving IT Governance Professionals (2009), IS standards, guidelines and procedures for auditing and control professionals Gay G, R, Simnett Auditing and assurance services in Australia, McGraw-Hill, revised 5th edition, 2012. Auditing and assurance standards board, Australian auditing standards, Australian government Available: https://www.auasb.gov.au/Pronouncements/Australian-Auditing-Standards.aspx. American Accounting Association , EvansIII, Harry John Australian accounting review. Kimmel, Paul D. , Jerry J. Weygandt and Donald E. Kieso Financial Accounting : Tools for Business Decision Making, 6th ed. Hoboken, 2011