Question

Some risks about the employee liabilities account. In the context of audit

I am doing an audit to this account and i need to find Inherent risks about the employee liabilities account. And if possible, some controls we can apply to it.

Answer 1

In financial and managerial accounting, inherent risk is defined as the possibility of incorrect or misleading information in accounting statements resulting from something other than failure of controls. Examples of inherent risk are most common where accountants have to use a larger than normal amount of judgment and approximation, or where complex financial instruments are involved.

Audit Risk = Inherent Risk + Control Risk + Detection Risk

While doing an audit, the auditor should analyse whether the employee liabilities appearing in Financial Statement are bogus or not. The Auditor should use his Professioanl Skepticism whether the Financial Statement reflect a True & Fair View. The management should comply with applicable & regulatory Financial Reporting Framework.

To manage the liability risk inherent in administering employee benefit programs, an organization must first identify the scope of that risk. In this regard, it must assess the people, plans and processes involved. It must consider the nature and extent of any past liability claims against the organization that relate to program administration.

Auditor should check whether any amount due regarding Employees has been paid in time or not. Accordingly he should frame his his audit report based on the evidences he get obtained through performing the procedures after proper planning.

Note:- Inherent risk is the risk posed by an error or omission in a financial statement due to a factor other than a failure of control. In a financial audit, inherent risk is most likely to occur when transactions are complex, or in situations that require a high degree of judgment in regards to financial estimates.