StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Comptronix Corporation - Identifying Inherent and Control Risk Factors - Assignment Example

Cite this document
Summary
The paper "Comptronix Corporation - Identifying Inherent and Control Risk Factors" outlines factors that augmented the control risk at Comptronix. The loss of the main consumers enhances control risk. The accounting method could be bypassed by the organization with factious manual entries…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER95.9% of users find it useful
Comptronix Corporation - Identifying Inherent and Control Risk Factors
Read Text Preview

Extract of sample "Comptronix Corporation - Identifying Inherent and Control Risk Factors"

Besides factors connected to the peculiar statement, the auditor needs to take external conditions into account that might help in controlling the Internal Risk. These can include the character of industry and business, the size of account balances, the integrity of management, the existence of connected parties, the lack of adequate working capital to continue the process, etc. Taking into account all the relevant factors, the auditor has to apply his professional knowledge and skills in taking appropriate decisions. “IR = Inherent risk (the risk that an assertion is susceptible to a material misstatement, assuming there are no related controls)” (Statements on Auditing Standards (SASs): Risk Assessment Standards par. 3).

Examples of financial records that have low Internal Risk include fixed assets or traded securities as opposed to accounts with high Internal Risk. For instance, those for which estimates have to be used and computations have to be conducted.

(b)With the benefit of hindsight, what inherent risk factors were present during the audits of the 1989 through 1992 Comptronix financial statements?

Fictitious Purchases of Equipment:
An audit comprising of a physical examination of Comptronixs equipment might have revealed that recognized assets do not exist. Considering the age of certain equipment, there is a need to take into account their depreciation. Thus, the actual value of some equipment may not correspond to their book value. “Fictitious transactions frauds involve important accounts or just assets or revenues in general” (Ketz 407).

Fictitious Accounts Payments for the Equipment:
Besides auditing in a way that would have exposed the absence of certain purchases of equipment, the assessor could have also carried out an examination of check accounts and bank records to see where and by whom the vouchers were cashed. This would have revealed that the checks were not cashed in by an outside party. Thus, the company would have been in a clear position to establish the involvement of someone within the organization in the said manipulation.

Fictitious Sales and Accounts Receivables:
In the same manner, as in the case of fictitious accounts for equipment, the assessor could have checked the inventory to confirm the decrease in inventory of goods for sale with the actual sales to the consumers. “The auditor’s objective in examining accounts receivable is to form an opinion regarding management’s representation that an account receivable is presented fairly in conformity with generally accepted accounting principles ("GAAP")” (Standing Advisory Group Meeting: Audit Confirmations 1).

The former would have shown the lack of sales and the latter would have shown the lack of outside consumers since no cash was received or remittance made into Comptronix’s bank account. Yet another option could be seen in terms of matching the sales with the invoices and order papers. Here, the auditor would have understood that there are no accounts for the false sales and therefore no sales have occurred.

2. Another Component of the Audit Risk Model is Control Risk:
(a) Describe general characteristics in an internal control structure that increases the auditor's assessment of control risk. Include a few examples from Comptronix’s internal control structure that increased control risk for the audits of 1989-1992 year-end financial statements.

Control risk is an auditor’s evaluation of the inside control method of a company. This also contains the attitude and proficiency management that directors have to internally control. When control risk is high the substantive actions that have to be taken to counter the risks also increase accordingly. The internal control of Integrated Framework published 1994 by COSO, breaks effective internal control into five unified systems. These are Control environment, risk assessment, control activities, information and communication, and monitoring.

The control environment includes the internal control structure and is measured as a base for all other essentials. It includes integrity, competence, ethical values, and the management’s philosophy, assignment of authority, operating cycles, and the directions given by the board. “Recent standards (e.g. SAS 107) suggest also a simplified audit risk model that combines inherent and control risks into one risk called the risk of material misstatement” (Popova 8). Risk assessment is best explained as the means of analyzing and identifying internal and external risks for attaining the objectives of financial reporting and control. Besides, control actions are developed to address each control objective and to reduce the inherent risks. Information and communication from administration to personnel have to be clearly stated and it should stipulate that all concerned should discharge control responsibilities with the deserving seriousness. The personnel has to recognize their role in the internal control system, so that the company, as a whole, can recognize the methods and actions by which the right information is given to the right people.

Finally, monitoring is the method to assess the performance of the internal control system over a period of time. “It is a process of routinely gathering information on all aspects of the project” (Bartle par. 1). At Comptronix, different factors augmented the control risk for the concern. First, the loss of the main consumers is a condition that enhances control risk as management has an inclination to misstate incomes and other financial records to achieve some ulterior motives. Second, the accounting method could be bypassed by the organization with factious manual entries. This boosts control risk granting limitless power to top management for manipulating and changing accounts.

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Comptronix Corporation-Case study on identifying Inherent and Control Assignment”, n.d.)
Comptronix Corporation-Case study on identifying Inherent and Control Assignment. Retrieved from https://studentshare.org/finance-accounting/1582017-comptronix-corporation-case-study-on-identifying-inherent-and-control-risk-factors-using-the-facts-of-the-case-and-the-relevant-auditing-standards-answer-each-of-the-questions
(Comptronix Corporation-Case Study on Identifying Inherent and Control Assignment)
Comptronix Corporation-Case Study on Identifying Inherent and Control Assignment. https://studentshare.org/finance-accounting/1582017-comptronix-corporation-case-study-on-identifying-inherent-and-control-risk-factors-using-the-facts-of-the-case-and-the-relevant-auditing-standards-answer-each-of-the-questions.
“Comptronix Corporation-Case Study on Identifying Inherent and Control Assignment”, n.d. https://studentshare.org/finance-accounting/1582017-comptronix-corporation-case-study-on-identifying-inherent-and-control-risk-factors-using-the-facts-of-the-case-and-the-relevant-auditing-standards-answer-each-of-the-questions.
  • Cited: 0 times

CHECK THESE SAMPLES OF Comptronix Corporation - Identifying Inherent and Control Risk Factors

Identifying and Managing Risk

Identifying and Managing risk Introduction The subject of financial risk management is concerned with the use of financial instruments in an organization in order to reduce the exposure of the organization to several types of risk.... The various types of risks mitigated though financial risk management techniques are market risk, credit risk, foreign currency risk, liquidity risk, inflation risk, etc....
3 Pages (750 words) Research Paper

The Revision: Inherent Risks

This could be perceived as an inherent risk in this Company ... There is always a dormant risk that customer preferences and tastes may change, due to conspicuous changes in fashion industry needs and competitive environment, in which the Company operates.... Purpose: Analysis of the information about the selected Company available Publicly to determine Speciality Fashion Garments Ltd (SFH ) inherent risks for the purpose of audit planning and performance. ...
6 Pages (1500 words) Essay

Importance of External and Internal Auditors in Reducing the Errors in the Financial Statements

The first step that the auditors do is to base their audit programs on the inherent risk of each item listed in the financial statements .... The inherent risk of this accounting item is that one or more of the accounting staff could recorded an expense in the journalisation stage of the accounting process when there is no right for such recording to occur....
12 Pages (3000 words) Essay

Corporate Risk Management

The only way to guarantee sustainable growth and development in a country is based on the holistic capacity to address all the incumbent risk factors.... This paper discusses the risk which corporations are exposed to.... Also, discussed are all of the elements in the risk management cycle associated with that mistake.... Following this consideration, fires pose a risk to corporations and thus fire protection is quite critical in the modern era of highly dynamic consumerism patterns (Huang 2009)....
10 Pages (2500 words) Research Paper

Risks for European Transnational Corporations

Nonetheless, investors who adopt proper measures to identify macroeconomic factors inherent to the emerging markets attain the capability to reach out to millions of customers and widen the target customer base.... On the other hand, companies, such as Ericson had failed to establish their presence due to strategic dysfunctions' majority of these dysfunctions are consequences of various internal and external factors associated with emerging countries, which can prove to be immensely dangerous for European organizations, considering an expansion into this counter to achieve business growth (Henisz and Zelner, 2010)....
11 Pages (2750 words) Essay

Auditing Fraud Risk Factors

The paper "Auditing Fraud risk factors" is a great example of an essay on finance and accounting.... The paper "Auditing Fraud risk factors" is a great example of an essay on finance and accounting.... The paper "Auditing Fraud risk factors" is a great example of an essay on finance and accounting.... For a good risk assessment, the auditor is required to use a systematic approach to identify the units in the financial statements, the possible risk factors in the units, and ways of preventing audit risk in the organization (Duta et al 1998, pp....
8 Pages (2000 words) Essay

Inherent Risk Factors - Bendigo Bank

The paper "Inherent risk factors - Bendigo Bank " is a perfect example of a finance and accounting case study.... What evidence is needed to assess an inherent risk, Identify what you consider are the inherent risk factors which would impact the audit of the BB.... The paper "Inherent risk factors - Bendigo Bank " is a perfect example of a finance and accounting case study.... What evidence is needed to assess an inherent risk, Identify what you consider are the inherent risk factors which would impact the audit of the BB....
10 Pages (2500 words) Case Study

Elders Limited Inherent Risk

ome of the inherent risk factors that can be considered in the Elders Company include; ... Inherent risk factors relating to management characteristics ... control risk is usually considered high in situations where the audited entity does not have a proper internal control system to help in preventing and detecting instances of fraud and error in the financial statements.... Inherent risk can be defined as the risk that results due to material misstatement in the financial statements due to error or omission because of factors that are not related to the control system in an organization (SBP, 2003)....
7 Pages (1750 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us