Analysis of Risk Factors and CAATs in Advance Auditing and Assurance

This report delves into the realm of advance auditing and assurance, focusing on the identification of potential risk factors and the evaluation of Computer Assisted Auditing Techniques (CAATs). The analysis begins by pinpointing various risk factors that can compromise the integrity of financial statements, including errors in staff codes, mismatches in financial statements, dual existence of accounts, complex transactions, and mistakes in amounts. The report then progresses to assess the sustainability and effectiveness of CAATs, such as Audit Software (GAS), Test Data, Simulation, and Integrated Test Facility, in mitigating these risks and enhancing the auditing process. By examining the strengths and limitations of each technique, the report provides a comprehensive overview of how CAATs can be leveraged to improve the efficiency and accuracy of auditing procedures, ultimately safeguarding against potential fraud and ensuring the reliability of financial information. The report concludes by highlighting the significance of these techniques in maintaining data integrity and reducing the risk of fraud, and the importance of applying these techniques in auditing processes.

ADVANCE AUDITING
AND ASSURANCE

Table of Contents
Question 1: Identification of risk factors....................................................................................1
Question 2: Evaluation of sustainability of Computer Assisted Auditing techniques................2
REFERENCES................................................................................................................................4

Question 1: Identification of risk factors
Auditing means official verification and examinations of the accounts and record that has
been kept by the entity. An inspection is done by the auditor in order to evaluate the
appropriateness, safety and efficiency of the financial statement and its functioning. It ensures
that fair representations of the accounts have been made. It helps to save the interest of
employees (Arens, Elder and Mark, 2012). It also makes sure that all the guidelines issued by
International Financial Reporting Standards (IFRS) have been followed by the organization. An
auditor also have to follow standards of Generally Accepted Auditing Standards (GAAS) so that
the work can effectively be performed as per issued instructions.
There are various risk factors involved while performing any function in the organization.
As per the case of Squeeze limited, who is involved in manufacturing of quality bedding
performs task in the entity.
 Error on staff code: A master file of SL's IT system includes tax schedules, information
of payrolls, employee details etc. The alternation are done through an email to The Chief
Information officer, Robin Beard. If any change is wrongly done in other staff member's
code then the whole detail sheet will get wrong (Bell and Griffin, 2012). Error on staff
code or digit to be entered can also lead to various risks to the entity such as, increased
cost and misinterpretation ODF the accounting records as well.
 Mismatch in financial statement: Robin make changes in the software as well as also
operates IT system if IT operator is on leave. It can be a hassle for him as managing both
the duties is difficult to be worked upon. Any discrepancy in reporting the data may
affect the records and further create mismatch in financial statements as well
(Christensen, Glover and Wood, 2012).
 Dual existence of same account: The company follows a policy where it promotes and
transfer its staff to different divisions and company within the group. New access is given
to the employees however, the entitlement of old access is retained. It helps to still
continue their work from the previous role. It can create dual existence of the same
account leading to overlapping of data. It can act as a fraud for the company where access
to two accounts have been provided (Cohen and Simnett, 2014). If the account is not
closed on time it can attract deception in the roles. It is more inclined towards the
fraudulent activity.
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 Complex transactions: SL gets involved in interest free credit contract with its
customers for 2 years. It has led to decrease in liquidity of the entity. In order to cope up
with the liquidity, it has taken debt. The company has to follow various rules while taking
debt from bank. It is not able to follow this and is at the verge of breach of contract. It is a
risky factor as it can bring the entity into losses. Further, window dressing the accounts
may mislead the bank and strict actions can be taken against SL group. Involvement in
complex transactions manipulate the results to a great extent.
 Mistake in amount: The bonus of employees are transferred based on the email done by
them referring contract number and value. Any mistake in the amount may lead to extra
credit of the amount. It will increase cash outflow of the entity.
These factors lead to loss of cash or any other asset. The owner of the entity should try
tom make the workplace a safer place and take appropriate measures that can reduce the risk of
fraud to the minimum.
Question 2: Evaluation of sustainability of Computer Assisted Auditing techniques
There are various Computer Assisted Auditing Techniques (CAATs). Some of them are
discussed below:
Generally Audit Software (GAS) is an auditing software which is designed for reading,
processing and writing data. It can be done by performing basic routine of auditing. Its function
includes, importing data through computer, browsing, sorting, summarizing and analysing the
data (Houghton and Campbell, 2013). It makes the basic tasks of auditing easy. However, it is
not much adopted by external auditors as it is difficult to rely on the data that is received from
Generally Audit Software. Further, it has limited benefits which reduce the scope of auditing. It
can help Oldbury in assessing, sorting and summarizing the data that have been entered in the
software.
Test data is another auditing technique which is used by auditors to prepare a series of
fictitious transactions. It involves the transactions which have intentional errors. The auditor find
out that whether the errors were detected by the system of client (Junior, Best and Cotter, 2014).
It tests incorrect and correct data and expects the input will be rejected if any incorrect number is
entered in the software. It tests possible input errors, logical process and irregularity. It can be
applied in this audit by examining that the details of Oldbury's fixed assets that have been
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mentioned are correct or not. It will also cross check depreciation amount and gain and loss of
disposal.
Simulation compares the data of the client and auditors generalized audit software
program. After processing the data it also compares the output which has got from the client. It
helps in verifying the transaction (Simnett, 2012). It is a time taking process and it can be
difficult to compare the two output. The technique can be applied on the fixed asset data of
Oldbury by comparing the data of the client to the data of the auditor.
Integrated test facility is an auditing technique which test the application logic and helps
in controlling normal operation of the entity. It helps in providing evidence of correct data have
been entered for program function. The entity can draw conclusion using this technique where
the fields of fixed assets and its description can be cross checked before reaching to ultimate
interpretation (William, Glover and Prawitt, 2016). It can cross check data such as, location
code, depreciation rate, date of acquisition etc.
These methods will help in effectively performing the auditing process for Oldbury's
fixed assets. It will also reduce risk of fraud fir the entity as well.
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REFERENCES
Arens, A. A., Elder, R. J. and Mark, B., 2012. Auditing and assurance services: an integrated
approach. Boston: Prentice Hall.
Bell, T. B. and Griffin, J. B., 2012. Commentary on auditing high-uncertainty fair value
estimates. Auditing: A Journal of Practice & Theory. 31(1). pp.147-155.
Christensen, B. E., Glover, S. M. and Wood, D. A., 2012. Extreme estimation uncertainty in fair
value estimates: Implications for audit assurance. Auditing: A Journal of Practice &
Theory. 31(1). pp.127-146.
Cohen, J. R. and Simnett, R., 2014. CSR and assurance services: A research agenda. Auditing: A
Journal of Practice & Theory. 34(1). pp.59-74.
Houghton, K. and Campbell, T., 2013. Ethics and auditing (p. 354). ANU Press.
Junior, R. M., Best, P. J. and Cotter, J., 2014. Sustainability reporting and assurance: A historical
analysis on a world-wide phenomenon. Journal of Business Ethics. 120(1). pp.1-11.
Simnett, R., 2012. Assurance of sustainability reports: Revision of ISAE 3000 and associated
research opportunities. Sustainability Accounting, Management and Policy
Journal. 3(1). pp.89-98.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic
approach. McGraw-Hill Education.
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