In: Accounting
1
A.Mention some misstatement of fraud risk in revenue cycle!
B.Mention some analytical procedure ratio related to inventory and payment cycle!
C.Why cash is considered as high inherent risk?
D.What is the different between disposal and impairment of non current (fixed) asset?
E.Mention some test of control regarding inventory and payment cycle!
F.Provide example of each management fraud and employee fraud regarding cash account!
A) Some misstatement of fraud risk in revenue cycle:-
B) Analytical procedures consist of ‘evaluations of financial information through analysis of plausible relationships among both financial and non-financial data’. They also encompass ‘such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount’ (ISA 520). A basic premise underlying the application of analytical procedures is that plausible relationships among data may reasonably be expected to exist and continue in the absence of conditions to the contrary.
Analytical procedures for analyzing inventory based on financial metrics such as
EXAMPLES OF THE ANALYTICAL PROCEDURES FOR Payment Cycle
(a) Compare
purchases expenses with budgeted amount.
b) Compare purchases
expenses with prior year.
(c) Compare
individual accounts payable with previous
year.
(d) Calculate
ratios of purchases to account payable and compare
with last year.
c) The following are the primary inherent risks of cash that could occur:
D) A disposal is pretty straightforward. It means that the company disposed ( threw away ) a fixed asset. Usually this is done when the fixed asset is no longer working and is pretty much junk. A good example would be a Machine that stopped working and is physically disposed of ( thrown away ) .
Impairment of a fixed asset refers to an abrupt decrease in the economic benefits that an asset can generate due to damage, obsolescence etc. Impairment is recognized by reducing the book value of the asset in the balance sheet and recording impairment loss in the income statement.
E) Test of controls for payment cycle
Test of controls for inventory
a)Observe physical security of inventories and
environment in which they are held.
b) Test procedures for recording of
inventory movements in and out of
inventory.
c) Test authorization for adjustments to
inventory records.
d) Test authorization for write-off or scrapping
of inventories.
F) example of management fraud regarding cash account
example of management fraud regarding cash account