Overview: Careful planning is a critical part of the success of every audit. However, planning is not simply done at the beginning of the audit but is a continuous and iterative process in which the r
Describe the major financial business transactions of the company.
If a public company, the best place to understand a company is to read through their public disclosures (i.e.10Q and 10K). For example, go out and read Nasdaq Inc’s 10K for 2018. It can be found on the investor relations web site for Nasdaq. What related financial transactions would there be (i.e. AR, AP, Payroll, Capitalized Software.
Current revenue streams:
• RNS sells networking hardware and software
• Professional services and provides information technology consulting to businesses.
• Software Development
For each line of business, the following should be considered:
Sales are the transactions in which property is transferred from buyer to seller for money or credit. Sales transactions are recorded in the accounting journal for the seller as a debit to cash or accounts receivable and a credit to the sales account.
Purchases are the transactions that are required by a business in order to obtain the goods or services needed to accomplish the goals of the organization. Purchases made in cash result in a debit to the inventory account and a credit to cash. If the purchase is made with a credit account, the debit entry would still be to the inventory account and the credit entry would be to the accounts payable account.
Receipts are the transactions that refer to a business getting paid for delivering goods or services to another business. The receipt transaction is recorded in the journal for the seller as a debit to cash and a credit to accounts receivable.
Payments are the transactions that refer to a business receiving money for a good or service. They are recorded in the accounting journal of the business issuing the payment as a credit to cash and a debit to accounts payable.
Here is also a good video to use.
https://www.youtube.com/watch?v=4PQkoulTdRs
Highest business risks associated with this company. What makes you believe these specifically are the highest risks?
In developing an audit plan for a company, the first key step is risk assessment. The main objective of the risk assessment and audit planning processes is to identify, categorize, and prioritize the business areas for audit coverage, so that we can assess the controls that mitigate the highest risks within a company. Risks are broadly defined as actions or inactions that could adversely affect the company’s ability to achieve business objectives. Risks should be evaluated in all these categories:
• Strategic
• Regulatory
• Financial
• Technology
• Operational
• Reputation
Have these risks been addressed. You did cover some of these:
Sales to customers with a higher credit risk profile. This is a financial risk for nonpayment.
Attracting strong technical employees
Charging higher prices given lower buying power can lead to losing customers and revenue.
This cannot be done in a vacuum. Key inputs come from interviews with management, results of prior audits (or audits not done for a long period), self-assessments performed by the second line of defense (i.e. compliance, Legal, etc.) and management responsiveness to addressing any open issues from prior reviews.
What would you suggest are the appropriate types of internal controls for this industry and why?
Effective internal control system, including monitoring, helps management to mitigate the risks described in the above sections. Controls should be mapped to risks. One can’t focus on every risk, so one must prioritize. RNS claims to have addressed these controls:
• Frequent monitoring of economy and industry conditions
• Monitoring of competitor actions
• Hiring of a marketing consulting firm to evaluate the performance of advertising methods
• Daily review of aging of accounts receivable
• Adherence to a controlled software development budget
The audit plan should address how these controls will be assessed.
Ethical issues involved with this company and industry that would have a direct effect on the outcome of a financial audit. How could these issues be addressed?
Ethical behavior is driven by tone at the top to a large degree. If the company has a code of conduct and training for employees that helps diminish risk of unethical behavior. In this case, a downturn in the economy puts pressure to close sales that might be not up to standards with policies. Also, Given RNS is a closely held company owned by six stockholders, it is not subject to as many stringent ethics standards (i.e. whistleblower).
Always best to have most members who are independent of the business.
Analyze current events for their impact on this company’s risk and internal control in the future.
The market for computer products and technology services is sensitive to economic conditions.
When the economy takes a downturn, there is more pressure on sales given there are less of them. Usually internal controls are bypassed in favor of getting the sale. For example: relaxing credit rules to provide credit to customers with slightly higher credit risk.
Auditors need to be on the lookout for that.
Articulation
Paper was clear with research sources cited. Diverse sources help bring new perspectives to the paper.
