Audit and Internal Control Issues Coursework Example | Topics and Well Written Essays - 1500 words

Audit and Internal Control Issues - Coursework Example In the next section, the report identifies the tests of controls to be performed for obtaining sufficient appropriate audit evidence in relation to purchases made during a year. Lastly, the report discusses the substantive procedures, which are to be carried out for the purpose of obtaining reasonable assurance as to the reliability and correctness of the information pertaining to inventory in the financial statements of the company. A. Key Business Risks, Possible Consequences and Risk Mitigating Strategies Since the company is going through a declining phase as far as profitability and sales turnover is concerned, it is pertinent to consider areas which require management’s attention. The increase in the employee turnover rate and the fact that there are few experienced professionals left in the accounts department of the company pose significant risks in relation to the operations of the company and the preparation and presentation of financial statements which are free fro m material misstatements. Apart from this, the increase in competitors of the business also poses a significant threat in future. All these risks can act together to result in a risk related to going concern of the business. From an auditor’s professional skepticism point of view, these risks and developments can have serious implications on the financial reporting and internal controls maintained by the company, since there is a possibility that management may try to manage earnings and overstate the sales revenue and profits of the business. In addition to this, greater employee turnover reflects that there is a continuous inflow of new inexperienced employees who are expected to be less aware of the procedures and practices followed in the company. Moreover, the company’s automated purchase management system is also regarded by the employees as inefficient due to the complexities and lack of user friendliness and hence the transactions are often recorded manually in the system. This manual practice of recording transactions is another area where fraudulent activities may take place and intentional misstatements may be made by the personnel responsible for data entry. Moreover, there are only two persons in the organization who possess skills to operate the system. Lastly, the composition of the board is also an area of concern; there are different affiliations of board members and there is a risk that the members may have some conflict of interest which may promote unethical practices (Rittenberg, Johnstone and Gramling 2011). Keeping in view these risks and their possible consequences, the company can take several steps to mitigate these areas and overcome these loopholes. First of all, there shall be appropriate measures taken to ensure that employee turnover is brought down to a minimal level in order to ensure that experienced and professional staff members are working in the company and therefore the function of financial reporting, in pa rticular, runs smoothly. On the other hand, there should be a resolution passed for the disclosure of director’s interest in Sucre Delights Limited and other companies, so as to identify and counter any conflicts of interest. The automated system shall be made more user friendly so that the users are able to run the system easily and are inclined to use it. Moreover, the fact that there are only two