Conducting Financial Audit and The Obtainment of Information on the Operation (Reaction Paper Sample)
In conducting financial audit, I believe the two most important aspects are steps are analytic procedures (Paragraph 28, 29) that are implemented / planned for conducting the audit and Management override of controls (Paragraph 42, 57); the former allows for auditors to plan and execute an audit and the latter can introduce risk to the financial system knowingly or unknowingly.
Analytical Procedures, as identified in Paragraph 28 (SAS 56 AU Section 329.02) are cornerstone for establishing audit framework with an objective of identifying scenarios in business data which are against the norms; any change in trends, amounts, ratios or relationship can warrant potential fraud which needs to be further investigated by audit team. Analytic procedures are used during audit for purpose of: Developing an understanding of the firm and identify high risk areas and align audit priorities, obtain audit evidence to evaluate operations and relate evidences and conclusions found during audit with financial statements. For analytical procedures to be conclusive, enough data has to be reviewed as smaller data sets will less likely identify unexpected trends; the data must be accurate, complete and vast. (Page 255)
While developing an understanding of the firm, audit will need to obtain guidance from management on key risk drivers for the firm. Here, management is in position to mislead auditors in understating the firms layout and gathering of evidences. Paragraph 42 identifies that auditors should assess the risk of managements ability to override controls and misdirect audit requests. While management is in commanding position to determine operational processes and controls, during evidence gathering, management may cover up or fabricate evidence.
19. SAS No. 22 (AU sec. 311.06–311.08) provides guidance on how the auditor obtains knowledge about the entity's business and how it operates. This is a useful concept in financial investigations due to the potential of information uncovered by the author that can be considered risks or unethical. If an auditor is aware of how the business operates then they can better determine the potential risks of fraud within the entity.
31. Material misstatement fraud are difficult to detect so fraud risk factors are conditions that create the opportunity for fraud to occur, for example not meeting quotas resulting in termination. Fraud risk factors can be used in a financial investigation by the auditor detecting the elements of the fraud triangle: opportunity (to commit the fraud), rationalization (to justify the actions) and incentive/pressure (to commit the fraudulent act). These underlying elements if detected can lead to the potential findings
Response to Discussions
Response to Discussions
A financial audit is undertaken using specific aspects that you have noted in your discussion. In particular, two aspects are crucial in the conduction of financial audits in organizations. Analytic procedures are among the crucial aspects that ensure auditors can schedule and execute any given audit accordingly.
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