look at the files before writing this Adding to your memo from Milestone One, document your understanding of the relationship between audit risk, audit evidence, and financial statement assertions
Milstone 1 feedback Submission Feedback Overall Feedback Hi Natali A good understanding of several of the main ideas for most sections.  Please see rubric for individual points. For the first section on financial transactions, I put an email out earlier in the week to help jump start the project. It went into sales, purchases, receipts, etc. More on the financial transactional part was needed here. If you missed it, go back and review my announcement. Always be sure you read all announcements as I add a lot of supplemental material to enhance learning. Below is feedback and best practices for each area. Key point to remember overall, is to ensure you tailor your audit plan to ensure controls are in place to minimize key risks that impedes companies from accomplishing business objectives. What are the risks that would cause the company to make the front page of a newspaper? 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 DevelopmentFor 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 employeesCharging 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 budgetThe 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. ArticulationPaper was clear with research sources cited. Diverse sources help bring new perspectives to the paper.
look at the files before writing this Adding to your memo from Milestone One, document your understanding of the relationship between audit risk, audit evidence, and financial statement assertions
ROBBINS NETWORK SERVICES INTERNAL CONTROL 0 Robbins Network Services’ Internal Controls Natali Rotches Southern New Hampshire University ACC 411 To: Manager From: Davis Johnson, VP Risk Management. Subject: Internal Controls Cc: Board of Directors Date: November 10, 2021 The significant financial business transactions of the company: Business transactions are vital to understanding various aspects of an organization, particularly those related to its internal control systems. Robbins Network Services (RNS) core finance business activities and transactions entail providing and installing software, networking hardware, and computers for clients. The organization also offers consultation services to other firms regarding information technology. Furthermore, to boost success, RNS utilizes services from experts with technical knowledge to provide much-needed operations. Since the organization seeks to remain competitive in the industry, it presents different products and services. For this reason, Robbins Network Services requires ensuring they give customers the most desirable services and products in a timely way. Evaluation of business risks associated with this company: Business organizations usually experience a wide range of perils that might limit the successful execution of business opportunities. Similarly, RNS experiences specific risks that delay its effective operation in the industry. First, potential downturns linked to the US economy are a significant peril RNS may undergo in its business. According to Zeman, economic downturns create a substantial threat to business transactions and activities (2019). Secondly, RNS encounters increased predatory pricing initiated by competitors eyeing a larger market share, which impacts the company’s potential to reach new customers. Furthermore, RNS also experiences high marketing expenditures that do not present expected outcomes regarding reaching more potential clients. Spending increased amounts of financial resources on inefficient processes is a risk that can affect the business (Akisik and Gal,2017). This explains how poor internal control systems that present unproductive advertising can hurt a business organization. Additionally, RNS also experiences other risks, including credit losses and software development operations’ generation of unsustainable products. In this sense, such business risks are a core threat to company activities, and RNS must work on sorting them out. The appropriate types of internal controls: Successful organizations attribute their long-term prosperity to various firm aspects, including internal controls. adequate and practical internal controls are crucial in operational success (Iwejor,2017). For this reason, RNS requires robust internal controls to boost its activities. First, RNS should focus on implementing duty separation as an internal control. A distinction of duties provides an opportunity for each active personnel to execute specific assigned tasks, such as auditing, reporting, deposits, and bookkeeping. Secondly, RNS requires access controls for its accounting system. The access controls are significant because they allow each accounting system to utilize certain logs to enable only authorized individuals. Thirdly, assets’ physical auditing is a critical internal control that can contribute to successful changes at Robbins Network Services. Physical audits are vital since they provide accurate information concerning inventory and cash, which puts the company in a transparent position. Another notable internal control for RNS involves utilizing 7-day trial balances, which entail double-entry records ascertaining that the firm’s debit records are equal to entries on the credit side. These internal control systems can help boost RNS operations.  Ethical issues involved with company and industry  Ethical issues are a normal part of the business world and understanding them is essential to ensure a business avoids them. RNS faces ethical concerns that it must sort out to operate smoothly in the industry. To begin with, manipulation of figures in the accounting and finance departments is a moral concern that can lead to the fall of a business organization. For instance, derivative manipulation played a central part in the fall of Enron, which is a crucial ethical issue. (MacCarthy,2017). For this reason, RNS must avoid such issues and ensure that its accounting department records essential and relevant details. Another notable moral concern, in this case, entails confidentiality issues. Undesirable maintenance of confidential data and information can lead to leaks, which affect the firm negatively. Thus, the company must avoid these ethical issues for better business outcomes. Current events for their impact on this company’s risk and internal control in the future: One significant event that might impact RNS’ internal controls and firm risk includes advanced technologies. According to the Wall Street Journal businesses require new internal controls due to technological advancement. As an illustration, artificial intelligence and automation change how companies operate, prompting business organizations to implement new internal controls, particularly those working on software aspects. Additionally, the current COVID-19 pandemic has a significant influence on internal controls and company risk. According to Zhu and Song, the outcomes of the pandemic on internal controls can create problems for firms. Thus, the changes and consequences must be assessed to ensure RNS stays ahead of the changing business circumstances (2021). References Akisik, O., & Gal, G. (2017). The impact of corporate social responsibility and internal controls on stakeholders’ view of the firm and financial performance. Sustainability Accounting, Management and Policy Journal. Iwejor, I. C. (2017). Internal controls: Identifying control elements and implementation dynamics facing retail companies (Doctoral dissertation, Walden University). MacCarthy, J. (2017). Using Altman Z-score and Beneish M-score models to detect financial fraud and corporate failure: A case study of Enron Corporation. International Journal of Finance and Accounting, 6(6), 159-166. The Wall Street Journal. (2020). Advanced Technologies Call for New Internal Controls. Retrieved from https://deloitte.wsj.com/articles/advanced-technologies-call-for-new-internal-controls-01581624126 Zéman, Z. (2019). New dimensions of internal controls in banking after the GFC. Economic Annals-XXI, 38. Zhu, P., & Song, J. (2021). The Role of Internal Control in Firms’ Coping with the Impact of the COVID-19 Pandemic: Evidence from China. Sustainability, 13(11), 6294.
look at the files before writing this Adding to your memo from Milestone One, document your understanding of the relationship between audit risk, audit evidence, and financial statement assertions
Assume you are an auditor at an accounting firm. Your team is getting ready to start a financial audit of Robbins Network Solutions (RNS). You will start with the initial review and audit preparation. You know the following information about RNS. Objectives of the Engagement Audit of the financial statements for the year ended December 31, 2017. Business and Industry Conditions RNS sells and installs computers and networking hardware and software, and provides information technology consulting to businesses. It is currently developing its own computer networking software to sell to customers. RNS’s success depends on attracting and retaining personnel with a high level of technical expertise who are able to provide a broad range of services. The market for staff is highly competitive. The market for computers and networking products is extremely competitive. RNS’s main competitors are companies like Dell, Hewlett Packard, and Apple. RNS also competes with local and regional resellers that provide similar products and consulting services directly to customers. To be competitive, RNS has relied on its ability to provide its customers with state-of-the-art products in a timely manner. Because the company does not have the buying power of some of its competitors, it generally must charge a higher price for its products, but it is also able to provide a higher level of service and expertise to its customers to compensate for the higher price. The market for computer products and technology services is sensitive to economic conditions. Economic indicators predict the U.S. economy will be relatively stagnant for the next few years, with the annual growth in spending for information technology products and services expected to be 1 percent per year for the next three years. In the past year, RNS has decided to increase sales by relaxing credit rules to provide credit to customers with slightly higher credit risk. Ownership and Management RNS is a closely held company owned by six stockholders. Two stockholders are active members of the company’s board of directors. None of the other owners take an active part in the management of the business. Objectives, Strategies, and Business Risks RNS’s primary business objectives are to increase sales, services, and consulting revenues by five percent and increase net income by seven percent each year for the next three years. Strategies to achieve those objectives include:   New software development   Aggressive marketing of products and services through increased advertising   Sales to customers with a higher credit risk profile The primary business risks associated with the company’s strategies include the following:   The U.S. economy may suffer a significant downturn.   Competitors may engage in predatory pricing to gain market share.   Increased advertising expenditures may not produce desired results.   Credit losses may exceed the benefits of increased sales.   Software development activities may not generate viable products. The company has developed the following responses to these risks:   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 Measurement and Review of Financial Performance Management uses the following measures to monitor the company’s performance:   Inventory and receivables turnover   Aging of accounts receivable   Sales and gross margins by type of revenue   Net income   Total inventory balance