Questions

It is the susceptibility of an account balance or a class of transactions to a material misstatement, assuming that there were no internal controls. The inherent risk at Telstra is that there may be certain types of misstatements that may not be identified during the course of audit. The inherent risk associated with the audit of Telstra is ascertained based on the nature of the business. Telstra Corporation Limited have these kinds of risks:- inventory valuation risk, intangible assets valuation risk, foreign currency risk, interest rate risk, tax risk, amendment risk and compliance risk. All the above stated risks pose potential material misstatements on the financial statements and thus need to be addressed (Telstra

The auditor must assess the transactions for how much of a risk factor is involved. When reviewing these transactions, auditor must be able to review the internal controls of the company’s accounting personnel. The segregation of duties is associated with the safeguarding of an organization 's assets and the topic known as internal control. An example of the segregation of duties would be a company 's requirement that the bank statement for its checking

2. What procedures can auditors perform to detect fraudulent entries made during the consolidation process?

With different industry definitions and viewpoints, fraud can be a tough issue for audit committee members to grasp for oversight purposes. The legal obligations of audit committee members have intensified because their standard duty of care and loyalty to the entity has increased in light of management fraud activities.

* Tests done are questioning management about procedures for determining uncollectible amounts and reviewing amounts

Also he may conduct bank reconciliations on pertinent accounts to make sure no discrepancies or misstatements are found. The auditor should also perform vertical and horizontal analysis for the income statements and balance sheets by the use of ratios.

This control is directly related to the accuracy transaction-related audit objective for sales. The auditor might test the effectiveness of this control by examining a sample of duplicate sales invoices for the clerk’s initials indicating that the unit selling price was verified.

Also another risk factor that will increase the company’s inherent audit risk is the situation of its cash flow. If a retail company has a negative cash flow which means it not generating enough cash to maintain its operations, the risk of misstatement will accordingly increase. As stated in Q1, auditors should spend more efforts on examine the cash accounts if the cash flow of the company shows some abnormal signals.

Potential for misstatement & fraud: Compliance with the established procedures and controls were found to be ineffective. The fraud reporting process, technically put in place does not serve its intended purpose. The ineffective control environment has created an attitude and tone across the company where errors and inappropriate behavior may be seen as acceptable, thus creating opportunity for concealing fraud and potential misstatements.

There are various procedures that could be taken in to account that would, if properly implemented, would have detected the frauds that occurred within the companies. There are many control risks that should have been taking regarding inventory along with preliminary audit strategies for the inventory and substantive test to be done that would have raised many flags during the typical audits as well as in depth ones.

3. Discuss how the fact that foreign companies are not subject to the same accounting, auditing, and financial reporting standards and practices as U.S. companies poses a risk not typically encountered when investigating in the stock of U.S. companies.

2. Choose two routes that JetBlue flies. (Compare their fares versus competitors that fly the same route.) Internet sites such as Expedia or Orbitz should make this go quickly.

a. “Analytical procedures are an important part of the audit process and consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data. Analytical procedures range from simple comparisons to the use of complex models involving many

The final responsibility for the integrity of an SEC registrant’s internal controls lies on the management team. U.S. companies need to refer to a comprehensive framework of internal control when assessing the quality of financial reporting to determine that financial statements are being presented under General Accepted Accounting Principles, GAAP. The widely used framework is referred as COSO, Committee of Sponsoring Organizations of the Treadway Commission, sponsored by the following organizations American Accounting Association, the American Institute of CPA’s, Financial Executives International, the Institute of Internal Auditors, and the Institute of Management Accountants. COSO’s defines internal control as:

Firstly, identify the inherent risks of import and export that effect to the firm related to financial statement and the overall performance. Secondly, auditor should study internal control which further will understand the control systems of the organization.