BML Report Case Study
An Audit engagement is an independent analysis carried out by a professional on organizational business transactions to find out if the financial statements reflect a true and fair view of the organization. It is an examination which is conducted carefully on the internal controls of a company and software system it uses to determine any loopholes and likelihood of the risk associated with either fraud or errors that compromise the credibility of financial reports. Audit practice after exposing the weakness of the internal control systems offers solutions of how to strengthen the controls to enhance the quality of financial reports. Assurance gives confidence to the client that the measures recommended by the audit team are trustworthy and should be enhanced (Lenz, & Hahn, 2015).
The person performing the audit should be careful and be independent to be a position to unravel the loopholes within the organization. The changes are attributed to the competition and prices fluctuation but emphasis need to be placed more on the controls put in place to ensure the operations are free from any form of error and fraud. The company is experiencing a difficult time due to the drop in the operations of the mining industry. Gold, Iron ore and Coal are the major raw materials, therefore, a decrease in their supply limits the operations of BML whose performance depends on their availability. Plant and equipment account is not in a position to bring back any profits to the company, therefore, Leanne Hopkins should advise the company to invest more funds in the computer controlled equipment since it is the only evident source of income in the current market.
Machinery financed liabilities are bound to reduce since less financing get channeled towards the project due to decreased maintenance costs and leasing practices. Consequently, the system controlling the movement of computer operated machines should be strengthened by numerous passwords and these passwords should be changed more often. In circumstances where the decline in demand for a lease of plant and equipment still performs below par, then Ms. Leanne Hopkins should advise BML to dispose part of the plant and equipment and use the resources to invest in a computer operated a machine in order to remain relevant in the market. The initiative will eventually boost the return on total assets and return on equity as well. Conversely, control risk is one which arises from a failure of the internal control systems to detect and control a misstatement (Chang, Wang, & Chiu, 2015).
The managers are responsible for an effective and efficient internal control system which is able to detect, prevent and control fraud in every section of the organization (Länsiluoto, Jokipii, & Eklund, 2016). There is delegation or rather a separation of duties as seen in BML way of dealing with an accepted contract where the contract accountant and payroll clerk both perform different duties. It is very important for the success of the organization because it minimizes fraud to a great extent. In circumstances where a contract is tendered and on acceptance passes through different professionals while being entered into the system eliminate chances of manipulation making the internal control so strong. To test for the separation of duty as an internal control, the auditor should determine if there is a possibility of setting up a receivable account and set up the payroll account in the system as well.
The test here is aimed at determining whether there is a balance between the two sections on a similar transaction and this is achieved by comparing keenly the books of accounts and what is in the system to review cases of malfeasance. Question 2B Inherent risks are associated with the likelihood of omission or commissions in a financial statement which happens in various organizations especially those dealing in complex transactions. It occurs mostly in places without proper internal controls. Contract payroll should be assessed to recommend measures that assure completeness, accuracy, and efficiency in the payroll processing system. The weaknesses on the payroll internal controls include the inability of the payroll staff to fully establish a segregation of duties framework that demonstrates the ability to limit the risk of error and fraud (Davidson, Dey, & Smith, 2015).
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