Control Environment Assessment Report: Cochlear Limited Analysis

This report provides an assessment of the control environment of Cochlear Limited, an international company in the hearing solutions industry. The analysis focuses on factors influencing the auditor's reliance on the company's internal controls, including its significant market capitalization and listing on the Australian Securities Exchange. The report examines various aspects of Cochlear's control environment, such as its handling of foreign exchange movements, credit risk management policies, and strategies for mitigating operational risks. It highlights the importance of non-IFRS financial measures, credit risk policies, segregation of duties, and the company's commitment to regular monitoring and reconciliation of transactions. The report concludes that these factors contribute to a high level of reliance on Cochlear's control environment by the auditor, emphasizing the importance of understanding the company's internal control structure to determine the extent of analytical procedures required during an audit. The report references relevant auditing and assurance services literature to support its analysis.

ASSESSMENT OF CONTROL ENVIRONMENT 1
ASSESSMENT OF CONTROL ENVIRONMENT
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ASSESSMENT OF CONTROL ENVIRONMENT 2
Assessment of Control Environment
Cochlear Limited is an international company that deals in the manufacture and sale of
implantable hearing solutions. As a company listed on the Australian Securities Exchange,
Cochlear Limited has significant market capitalism of more than $10 billion. According to the
corporate governance arrangements of Cochlear Limited, there is a likelihood of the potential
reliance which can be put on the overall control environment of the company. As an auditor, one
must assess the reliability of the internal controls of a company so that he can determine the level
to which the analytical should be applied when conducting the audit. This can be done by
obtaining an understanding of the internal control structure of the entity (Knechel and Salterio
2016, p. 71).
Various factors or issues lead to a high likelihood of reliance on the overall control
environment of Cochlear Limited. For instance, owing to the significance of the movements of
foreign exchange, the non-IFRS financial measure has not been reviewed by the previous
auditors. The auditor usually undertakes various procedures to confirm that the non-IFRS rules
that were disclosed in the financial statements of the company were correct (Knechel and
Salterio 2016, p. 73).
Besides, Cochlear Limited mitigates its exposure to credit risk by putting in place robust
policies and procedures for the management and administration of credit and accounts
receivables. The company monitors customer credit risk by evaluating the aging profile of the
total balances of receivables and also reporting significant debtors monthly. Furthermore,
Cochlear has a clear strategy for reducing and managing operational risks. For instance, it has
strict policies that encourage segregation of duties and the independent authorization of business
transactions, which helps identify and prevent fraud and errors (William, Glover and Prawitt

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2016, p. 208). The company also reconciles its transactions and monitors them regularly. Control
procedures are also documented adequately. As well, Cochlear Limited periodically assesses the
operational risks that it faces and also evaluates the adequacy of its internal controls and
implements solutions to the identified risks. All these factors give the company a significantly
high reliance on its control environment by the auditor (Knechel and Salterio 2016, p. 102).

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References
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic
approach. McGraw-Hill Education.