Essay Example on The client management quality standards

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The client management is composed of the people from the auditing firm who are responsible for ensuring that the work carried out meets the quality standards of both the firm and the client They are responsible for appointing the quality assurance personnel who review the work performed by the external auditors to ensure that it meets all standards MW A 2016 In regards to internal controls they are responsible for validating transactions processed through the internal control system The corporate directors are those individuals charged with governing the company ACCA 2009 They are directly responsible for coming up with standards followed in the organization Since they set the standards followed they are charged with the responsibility of ensuring that there exists a functional internal control system which can detect material misstatements relating to the organization Auditors are independent individuals hired by the organization to check whether the books prepared by the company show a true and fair view of the affairs of the organization Mark 2006 As regards to internal control systems the auditors ensure that they assess the adequacy of the accounting system to help them identify areas that are prone to the risk of material misstatement Q2 Auditor's Understanding of Internal Control Audit Strategy 


The work of the auditor is to check whether the financial statements of an organization represent the true and fair view of the activities of the organization The auditor is required to carry out tests to determine if the information provided is reliable Office 2010 To determine if control systems are reliable the auditor may decide to take the tests of control for example he might decide to undertake a run through the test If the tests prove that the systems are reliable the auditor reduces the level of substantive tests If on the other hand he finds that they are unreliable he raises the level of substantive tests For example he might decide to inspect all inventories by physically counting Part II Q1 and Q2 Three Effective Internal Controls in Caroma Activity 1 The Company has appointed different officers to handle the process of purchase By appointing different people to handle different activities the risk of fraud reduces The person who is responsible for receiving the requisition from the customer is different from the person responsible for shipping and recording the sale and is different from the person receiving the cash If an error occurs it is easy to trace its origin Office 2010 Activity 2 The sales order shipping notes delivery dockets and sales invoice are all pre numbered Pre numbering ensures consistency of recording of transactions If a transaction has occurred it must appear in all the documents in chronological order If one document s number is not in other documents an investigation is carried out to determine the reason for the same Mark 2006 Activity 3

The bank reconciliation of the company is carried out monthly by an independent accountant The activity ensures noting of any transactions recognized by the company and in case of fraud detecting and reporting for action Mark 2006 Q3 Key Assertions of Each Control Activity 1 The key assertions for this activity include occurrence completeness and accuracy The officers of Caroma will ensure that only recording of transactions that occurred and that the recorded amounts reflect the true amounts of the transactions Office 2010 Activity 2 The key assertions include cutoff occurrence and existence Pre numbering ensures that all transactions recorded occurred recorded at the right period No transactions belonging to current period are recorded in the future period ACCA 2009 Activity 3 The key assertions are completeness occurrence rights and obligations and cut off Reconciliation ensures that all entries made are complete and they occurred in the period which they ought to have occurred Reconciliation further ensures that the transactions recorded belong to the organization Mark 2006 Q4 Weaknesses of Internal Control Weakness 1 The shipping officer has a lot of responsibilities that could lead to a material misstatement of fraud Weakness 2 The shipping notes prepared in two copies only sent to the invoicing department and one retained by the shipping officer Office 2010 Weakness 3 



The sales invoices are filed using the customer names Q5 Balances at Risk Weakness 1 The shipping department of Caroma has obligated the shipping officer with receiving the sales order getting the goods from the warehouse packaging them and arranging for transportation There is no verification as to whether goods ordered for are the same goods shipped The weakness may affect Caroma s accounts receivables if the order does not tally with the delivery Mark 2006 Weakness 2 Preparing the shipping notes in only two copies is likely to affect the sales account in case of shipping the wrong order The customer has no way to verify the order until after it is received Weakness 3 Filing the sales invoice by customer names it difficult for the auditors to sample sales transactions or the accounts receivables for auditing Q6 Key Financial Report Assertions at Risk Weakness 1 The assertion of completeness may be at risk if the officer decides to commit fraud Weakness 2 Rights and obligation assertion may be at risk if the goods shipped do not match the customer's specifications Weakness 3 Existence and occurrence might be at risk if the auditor cannot sample to verify whether a transaction took place


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