Auditing & Assurance: Business Risks, Fraud Impact, Audit Risks, and Testing

This document discusses the business risks, fraud impact, audit risks, and testing related to auditing and assurance. It also includes additional audit work, key questions, audit strategy, environment control, customer payments testing, and accounts payable tests.

1Running Head: AUDITING & ASSURANCE
Auditing & Assurance
Author’s Name
Institutional Affiliation

2AUDITING & ASSURANCE
Auditing & Assurance
To: Jek Porkins
From: Audit Manager
Date:
Subject: Dudley Health Limited (DHL) Assignment
Business Risks
Business Risk Impact
Based on the case scenario, it has been found that Samway Baker Fitzgerald (SBF) is an
organization, which has a branch in Pellegrino Shores. The senior staff member of this branch
had conducted a fraud associated with the payment of residents in Port Macquarie. Moreover, the
senior employees were found to be involved in a scam, which created a tremendous impact on
the organization and the business in an effective manner. In the initial stage, it can increase the
risk of misstatement, which can further create an issue in the transactional balance of the
company. In addition, it can also affect the organizational integrity within the market. The key
authorities may face issues in operating a business in the existing market because the fraud can
manipulate the accounting activities to a large extent (Ftms, 2013).
The financial background of the company may be affected badly, as the company may
face major financial pressure within the market. In addition, it can lead to the creation of a vague
financial report, which can lead the company towards incurring a complete loss in the market. As
the secret payment of residents was not recorded in the financial book, it can create two major
risks namely detection risk and control risk (Ftms, 2013). Lack of detection can contribute to

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manipulating the organization towards the wrong control, which can further be considered as
harmful for the company.
Impact of Fraud at Pellegrino Shores
Based on the fraud scenario, certain accounts have been affected, which can create a
misstatement in the financial books. In the initial stage, the book of the resident database
associated with the room rent has been affected. In addition, the money allocated for the various
services to the resident also affected the fraud activity. The company also created a limited
money structure of room rent and services on the basis of the period of stay. Hence, the money
value can be changed due to the fraudulent activities, wherein the resident can claim for the
services in relation to the money paid by them. A major manipulation can be seen in the
calculation of their salary and wages, which affected the expense accounts i.e. employee
insurance, profit and loss account, balance sheet and trial balance book among others largely. It
may even lead the company towards facing audit risk i.e. lack of opportunity to grow, less
rationalization in the business operation and higher volume of financial pressure to control the
loss due to fraud (Dallas, 2011).
Additional Audit Work
Associated Audit Risks
The fraudulent activity not only affects the business operation but also increases the audit
risks, which can harm the financial activities of SBF. The management of net working capital
can get affected tremendously. It can further help in determining financial maturity and
organizational ability to invest. Hence, the secretly collected amount will create an issue in
adjusting the working capital in the financial book. In addition, it can create an issue in

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measuring the organizational tax, wherein the auditor may find a wrong interpretation of taxation
in the financial records, thereby creating a major audit risk in the organization (KPMG AG.,
2019).
According to Nikolovskia, Zdravkoskib, Menkinoskic, Dičevskad, and Karadјova,
(2016), three types of audit risks are mainly faced by an organization i.e. control risk, detection
risk and inherent risk. In relation to the control risk, the incorrect claims of material or service
have been checked properly by the auditor. Hence, any type of activity related to the incorrect
claim in relation with time can create audit risk. With respect to the case, the resident can claim
services for their secret payment, which can, in turn, create an audit risk during the period of
audit. On the other hand, fault in transactions and its balance adjustment in account books can be
considered as an inherent risk. In relation to SBF, the misadjustment of the secret payment will
create an inherent risk. Inadequate supervision in financial activities can be considered in the
detection risk, wherein the key authorities are unable to control fraud. The key associates of SBF
will also face the detection risk during the period of audit. Hence, they need to create proper
strategies for handling the issues associated with patient revenue in St Neville's or else, the
organization will face major loss within the market (Nikolovskia et al., 2016).
Key Questions
Based on the scenario, two questions can be asked by the internal auditing team to the
associates in Pellegrino Shores. The following questions must be resolved properly, wherein the
organization can control the loss associated with the fraud activity.
Question 1. Which materials have been claimed by the residents in Pellegrino Shores?
All the services have been provided properly but for what was the extra amount paid?

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Question 2. The amount received from the resident has not been adjusted in the financial
book. Which account will these amounts be recorded? What are the purpose of these amounts
and its transaction?
Audit Strategy
The key managers of the company need to create a team including experienced officers and
employees, who can understand the financial activities. It can help them to assess and control the
internal activities, which reduces audit risk. The future risks and challenges must be assessed by
this team so that financial activities can be performed in an effective manner. Most importantly,
the organization must conduct short time audit activities which can easily resolve the issues
similar to the fraud and secret payments. Maintaining documents of each financial activities and
its proper record in the financial books can reduce the issue associated with the patient revenue
in St Neville's. The audit team or committee must take instant decision to control all the
fraudulent activities. They must implement audit policy, wherein each employee must ensure
financial activities with the documents. Proper document of all fees, salary and wages among
others can help the employees to establish a fair relationship with the organization. It also
eliminates issues associated with the secret payment and fraud activities and the issues associated
with patient revenue at St Neville's within SBF. Moreover, transparent transactions with the
residents as well as others such as consumers and suppliers can lead SBF to reduce the risks
associated with patient revenue in St Neville's (KPMG LLP, 2014: Worldbank, 2002).
Acuity Vison's Sale of Medical Supplies
Risk Associated With Key Account Balance & Financial Assertions

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As per the case scenario, the general ledger and customer account balance can be
considered as the source of the key account balance of the company. Fundamentally, the ledger
is one of the most effective financial processes, wherein all the journal entries have been verified
properly. It is a useful process of the double-entry system. Only financial transactions have been
included in this process (Nos, 2008). On the other hand, the customer account balance only
covers the consumer activities associated with sales. The organization does not follow any
accounts associated with the sales team and their need. It can, therefore, decrease employee
satisfaction within the organization. It can further create a major risk associated with
organizational sales due to low payment. The accounts related to the sales such as cash account,
profitability account, salary or wages account and sales account among others can be considered
to be of high risk due to low payment of sales team. The company also faces a major risk with
respect to employee satisfaction.
Besides, the sales team conducts direct sales within the market for generating an adequate
sum of revenue at the end of the. The company mainly focuses on consumers instead of sales
team employees. The numbers of sales executive can be reduced, which can highly affect the
cash flow within the organization. The working capital account and the book of cash flow can
also be affected due to the labor shortage. The financial position of an organization has been
properly projected through the cash flow account (Ncert, 2019). Hence, the labor shortage can
affect the financial background of the organization as well. Additionally, the organizational
potential associated with investment was affected in case labor shortage posed an impact on
working capital account the. These two can be considered as the major risks of SBF in its
existing market.
Environment Control in DHL

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The environment can be considered as one of the effective aspects of any organization
because it develops organizational productivity and profitability. In relation to the SBF, the
company needs to develop its communicational areas in order to resolve the issues associated
with patient revenue. The internal co-operation will be developed which can further enhance
company performance within the market. Proper relationship strength must also be developed for
controlling the environment, which can lead the managers towards maintaining proper decorum.
Most importantly, the company must improve the ability of the accounting team to resolve fraud
and misstatement issue. Only proper skills and behavior of the employees can develop the
organizational environment. The issue related to the low salary can be easily mitigated through
this strategy. Moreover, SBF must provide value to the sales team in order to increase sales
within the market (Schultz & Doerr, 2015).
Customer Payments Testing
SBF must test the payments of the consumers in order to resolve the issues associated
with the new revenue system. Proper payments system and its testing can increase the
organizational trust within the market, which will provide adequate subsidies to the elder and
other patients. Furthermore, new payment system testing can introduce the required electronic
device to the customer, wherein the speed of the payments and its benefits can be increased. A
cost-effective payment network can further be introduced. In addition, the security of the
payment system will enhance, wherein each consumer can pay their bills safely. Most
importantly, the efficiency of the company will increase, which will, in turn, increase the success
rate in the international market. A proper collaboration and business relationship can further be
created through the payment testing of the consumers. These factors can thus be considered as
the major effectiveness of SBF’s customer payment testing (Federal Reserve Banks, 2016).

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Accounts Payable Tests
Test Type of Test Key Assertion Reasonableness of
Conclusion
Additional Audit
Procedures
1
The test of control
has been selected for
this test because
material-related
errors have been
found (Cenit Online,
2015). The company
needs to fix it in
exchange for a
proper payable
account.
The material errors
have to be
resolved. It will
further reduce the
audit risks at the
end of the year.
The material error can be
considered as one of the
common issues in
accounting. It creates a
major ambiguity or
omission in the financial
books, which can create
major audit risk. For this
reason, resolving
materialistic error can
assist the organization in
creating feasible
accounting books.
Furthermore, the reliability
of financial information
has been increased by
diminishing material error
(The Institute Of Company
Secretaries of India, 2014).
The internal auditors
must conduct additional
audit activities to
develop the recent
situation. In the initial
stage, they must test all
the transactions
associated with the 15
suppliers to find the
material error and its
pattern. All the balances
associated with financial
statements must be
checked properly. At
last, the process of
accounting information
presentation and
interpretation must be
checked properly to
resolve the issue.
2
The substantive has
been considered for
this because a
misstatement
associated with the
discount has been
found herein (Cenit
Online, 2015). This
can directly affect
organizational
productivity and
profitability.
The misstatement
has to be resolved.
Most importantly,
the pattern or
specific reason for
issue must be found
to make adequate
financial records.
Misstatement can be
considered as a major
issue in any financial
books. According to the
American Institute of
Certified Public
Accountants (AICPA),
misstatement is a wrong
presentation of financial
activities. It can create
fraud or error in financial
statements (AICPA, 2018).
Hence, investigating the
discount misstatements
and its reason can help the
organization to mitigate
audit risks.

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Key Assertion at Risk
Overtime in Pellegrino Shores
Overtime payment activity within SBF can create various risks within the company. In
the initial stage, both unskilled and skilled employees will take the earning opportunity, wherein
the recruitment of the new talent can be reduced. Hence, the growth of the organization may
slow down. However, an employee needs proper skills to conduct overtime works because it
needs physical as well as mental ability. For this reason, unskilled or low skilled employees may
feel exploited within the organization. It can be considered as one of the major issues because it
reduces the service quality of the organization, which can harm the consumer and employee
satisfaction to a large extent. Change in pay legislation in the country can badly affect the
overtime workers and their payments. In addition, the organizational policy can change, which
further creates major issues in the payment system for the overtime workers (Oaxaca, 2014).
Most importantly, the motivation of the employees can affect badly due to the mentioned reason.
Hence, SBF needs to take adequate internal control process to assess and resolve overtime
payment issues. Hence, two processes of control has been discussed below i.e. Preventative
Internal Control and Detective Internal Control. It can thus, resolve the issues associated with the
payment of overtime workers.
Preventative Internal Control
Preventive control can also be considered as one of the effective control it can help to
assess undesirable events being conducted in future. A proper strategy and plan have been
created for future risk. It mainly helps to handle the unexpected future phenomenon associated
with the business operation. In relation to the SBF, the key authorities of the organization must
assume future events such as financial crisis, organizational loss and government legislation

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among others. Making a proper strategy for future events can help the organization to take an
adequate decision in case the event occurs. Hence, change in overtime payment policy and its
effect must be assumed. The current decision, as well as pay structure, must be developed
through future events. Using this internal control, a successful payment system for the overtime
workers can possible be established. It will thus lead the organization towards attaining success
in its existing international market (Savannahstate, 2011).
Detective Internal Control
Detective internal control is another process, which can help in assessing and resolving
the future acts associated with the documents and activities. It further helps to measure the
variance of work activities and lead the managers towards reviewing as well as analyzing the
documents along with the organizational inventories so as to make a proper strategy for future
activities. Auditing is one of the major aspects of this control and its process. In relation to SBF,
the key associates must create a proper budget for the overtime payment. During the overtime
activities, they can easily measure the cost condition, which can help them to make the required
decision to mitigate upcoming risk. This detection can help the organization to prevent future
losses associated with the overtime pay. In addition, the financial books can also be audited
properly through this control, wherein SBF can implement effective overtime payment system
for the employees (Savannahstate, 2011).

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References
AICPA. (2018). Evaluation of misstatements identified during the audit. AU-C Section 450, 375-
383.
Bunget, O. C. & Dumitrescu, A.C. (2009). Detecting and reporting the frauds and errors by the
auditor. Annales Universitatis Apulensis Series Oeconomica, 11(1), 117-125.
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