Question

What types of activities increase or decrease accountant/auditor risks? Use examples from your own experience, if possible.

Answer 1

The following activities or transactions increase Accountant/Auditor's risks:

a. Related Party Transaction:

These transactions are most fraud prone and manipulated once. They are sometimes done with predetermined intentions to accrue undue benefit. Such transactions shall be closely monitored.

b. Year end adjustments

Year end adjustments such as Provisioning for Anticipated Bad Debts may involve overestimation or underestimation to manipulate the Income Statement. Delayed recognition of transactions at year end shall also be monitored.

c. Inventory Valuation

Closing Inventory valuation is another important way to manipulate the Gross Profit or Loss calculations. It is important tool in hand of Management to affect the Income Statement where Inventory forms a highly important part of the Financial Statements.

d. Subsequent Events after the Balance Sheet Date.

e. Change in Accounting Policies, Principles or Methods, like change from FIFO to LIFO

f. Changes in External Legal Requirements, say changes in Accounting Standards.