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Continuous Auditing : Automated Auditing Capability

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Question:

Discuss about the Continuous Auditing for Automated Auditing Capability.
 
 

Answer:

Introduction:

Some of the strengths in purchase and payment system are that once goods are received, warehouse manager take time to check for the delivery not against ingredients and then enlighten the deliver pump ingredients in the company’s storage tank. This is a key strength since it would assist in ensuring that goods are delivered in the right quality without compromising the product quality. The second strength is that as a result of bulk quantity discounts, the warehouse manager place an order of the ingredients for three months whenever one month ingredients are left. This is another key strength since it would enable them to enjoy large discounts and to ensure that the firm is able to deliver products once they are required by their clients without any delay.

Thirdly, the act of account payable clerk of checking details of delivery note received for discrepancies before preparing a cheque for amount of invoice as well as forwarding cheque requisition, with invoice and delivery note to financial controller for authorization is another key strength. This is viewed as strength in purchase and payment systems since it help in evading any chance of making payments to products that are not to the required standards or evading any chance of exaggerating the amount to be paid to suppliers. It also assists in reducing any probability of making the wrong amount to the suppliers (Taylor, 2000). Another strength in purchase and payment system is the fact that once the cheque is signed by the managing director and financial controller for authorization, forwarding the document to banking clerk for documentation to general ledger and act of filing the cheque requisition with supporting documentation by the cheque requisition number. This is viewed as a strength in that is assist the firm in ensuring that all the evidence for payment is available for future use in case suppliers state that they did not receive any payment from the warehouse.

Some of the weaknesses that can be pointed out during purchase and payment system is that first there no record was kept during the conversation between the warehouse manager and approved suppliers, nor does the manager required any approval. This is a major weakness in that lack of proper record during conversation would result in wrong order being delivered by the suppliers or wrong quantity or quality being recorded whereby the warehouse manager would not have evidence to prove the quantity or ingredients s/he ordered. Secondly, when goods were received by warehouse assistants at no point did they check actual quantity received or delivered to them. Failure to check for actual quantity received is viewed as a weakness in purchase and payment system since it would result in poor quantity being delivered to the warehouse unnoticed which could at some point result to major loss being reported at the end.

To test controls for strength associated with the act of warehouse manager taking time to check for the delivery not against ingredients before allowing the deliver pump ingredients in the company’s storage tank would be include test for existence. This would comprise of testing or re-performance of control such as checking prices and sighting documents to verify that controls were all complied with (Taylor, 2000).

On the other hand, to test control for strength associated with warehouse manager act of placing an order of the ingredients for three months whenever one month ingredients are left would be test for continuity. This would be accomplished by ensuring that samples of the transactions that are to be tested are selected all through the year (Flowerday, Blundell & Von Solms, 2006). Further, to test controls for strength linked with the act of account payable clerk of checking details of delivery note received for discrepancies before preparing a cheque for amount of invoice as well as forwarding cheque requisition, with invoice and delivery note to financial controller for authorization would include test of effectiveness. This would comprise of procedures such as checking maths on invoices as well as checking that all the delivery notes contains some supporting documentations. This would assist in ensuring that the controls are correctly identified (Gay & Simnett, 2000). Basically, test of controls for this strength would comprise of selecting sample of organization in the cash receipts journal as well as reviewing evidence which could be matched to specific sales invoices.

 

Finally, to test controls for the strength linked with the act of cheque being signed by the managing director and financial controller for authorization, forwarding the document to banking clerk for documentation to general ledger and act of filing the cheque requisition with supporting documentation by the cheque requisition number would be test for effectiveness. This would comprise of checking whether the control is programmed like checking the authorization codes, or running unauthorized transactions via the program in order to ensure they are properly identified and excluded (Gay & Simnett, 2000).

To minimize the weakness or risk associated with lack of proper record during conversation between the warehouse manager and approved suppliers would include completeness test. In this case, a test for completeness would be conducted which include evaluation of numerous transactions in the accounting records to satisfy that goods recorded were delivered (Taylor, 2000). In general, given that there is a probability of misstatement due to lack of proper record of the conversations, there is needs to test for client’s bank reconciliation. Here, there is need to inspect supporting documents for payments (Gay & Simnett, 2000).

On the other hand, to minimize weakness or risk associated with failure to check for actual quantity received by warehouse would include test for completeness. This would comprise of performance of substantive tests of the balances and transactions where the manager test whether there is sufficient comfort over specific assertion of the transactions or balances (Rezaee, Sharbatoghlie, Elam & McMickle, 2002). In essence, this includes evaluation of account balance components in the firm’s statements.

 

References

Flowerday, S., Blundell, A. W., & Von Solms, R. (2006). Continuous auditing technologies and models: A discussion. Computers & security, 25(5), 325-331.

Gay, G. E., & Simnett, R. (2000). Auditing and assurance services in Australia. Sydney: Mcgraw-hill.

Rezaee, Z., Sharbatoghlie, A., Elam, R., & McMickle, P. L. (2002). Continuous auditing: Building automated auditing capability. Auditing: A Journal of Practice & Theory, 21(1), 147-163.

Taylor, W. A. (2000). Change-point analysis: a powerful new tool for detecting changes. preprint, available as https://www. variation. com/cpa/tech/changepoint. html.

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