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- 1. BA 3010 Assignment #1 During this course, you will be graded on three dimensions: 1. your ability to identify the correct analytical tool to use, 2. your ability to execute the analysis you have selected, 3. your ability to interpret the results of your analysis To that end, the assignments will try to reinforce those particular skills by directly targeting these dimensions. All of your work should be done in an Excel spreadsheet, including your text responses. Do not send in a Word document. You should submit your assignment via the submission process in Blackboard. Identify Q1) Open up the file Assignment 1 and examine the data set on the worksheet Q1. This is a data set of 500 Bakersfield households that were recently surveyed. A definition for each variable (unless self-explanatory) can be found in the comments section (place your cursor over any cell with a little red triangle – a comment box will pop up). Our objective is to learn about the financial state of all Bakersfield households. Answer the following (a text box for your answers is provided to the right of the data): a) Is this cross-sectional data or time-series data? b) Is this a population or a sample? c) Ignoring the variable Household, which is just an identifier variable (household #1, household #2, etc.), identify the variable type and sub-type for each variable. d) If you wished to examine the distribution of the variable monthly payment, what would you do? List any graphs or calculations you think appropriate.
- 2. Execute Q2) Create the following graphs. Note we are still using the data in Q1. a) For the data in sheet Q1, do a histogram for the variable debt. Don’t be afraid to redo it a couple of times (resetting the number of bins or the “span” of the bins) until you get one that is satisfactory and revealing. b) Again, for data in sheet Q1, do a boxplot with the variable first income. Q3) Examine the data set in the worksheet Q3. This data set lists the 24 players who were on the roster of the Colorado Avalanche at the beginning of the 2001-2002 NHL season. The variables include the name, position, and salary for each player (see the definitions in the comments). a) Calculate the following values for the variable Salary: i. The average/mean ii. The median iii. The standard deviation iv. The maximum, minimum, and range v. The 1st and 3rd quartiles and the inter-quartile range vi. The salary that 35% of players earn less than vii. The salary that 20% of players earn more than b) Create a box-plot for the variable Salary. Interpret Q4) Examine the graphs shown below. What do you learn from this graph? In other words, what can you tell us about the distribution of first_income? It might help if you pretend you are summarizing the results in a few sentences for your boss. Please type your answers on the Graphs page of the assignment
- 3. 1 spreadsheet. Graph (from data set 1 in the assignment 1 spreadsheet) Q5) Interpret the following. What do you learn? What conclusions can you draw? Don’t forget to write your answers in the spreadsheet on the Q5 worksheet. In May of 2004, a study was published examining the total compensation (salary and bonus) paid to the CEO’s of some 350 firms. Boxplots of the distribution of compensation are shown below (a horizontal oriented plot immediately below and a vertically oriented plot on the next page) as well as some basic summary measures. All values are in $1,000’s of dollars. What can you conclude from this analysis (besides the already well- known fact that these guys are well-paid)? Sum03 One Variable Summary Data Set #1 Mean $2663.32 Std. Dev. $2986.04 Skewness 4.8769 Median $2065.40 Minimum $0.00 Maximum $28000.00
- 4. Range $28000.00 Count 350 1st Quartile $1183.00 3rd Quartile $3000.00 Interquartile Range $1817.00 1.00% $0.00 2.50% $117.50 5.00% $449.30 95.00% $7250.00 97.50% $9500.00 99.00% $17137.50 Histogram of First_Income / Data Set #1 0 20 40 60 80 100 120 140 160 180
- 5. $10,000$20,000$30,000$40,000$50,000$60,000$70,000$80,000 $90,000 $100,000 Frequency StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only Box Plot of Sum03 / Data Set #1 050001000015000200002500030000 StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only
- 6. StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only StatTools Student Version For Academic Use Only A U D I T I N G Assessing and Responding to Risks in a Financial Statement Audit Auditors must leave a clear record in private company audits. by John A.Fogarty, Lynford Graham and Darrel R. Schubert This is the first of two articles describing the requirements of— and implementation suggestions for—new guidance from theAuditing Standards Board (ASB). This article discusses theprocess of assessing risks and controls, leading to the concept of the risk of material misstatement. A subsequent Jo/A article will dis- cuss how lhe auditor responds to the risk of material misstatement.
- 7. These eight standards (see exhibit 1 at right, and "The New World of Auditing Slandards,"JojA, MayO5, page 59) are de- signed to help auditors plan and perform audit procedures that will address assessed risks, enhance the auditor's response to audit risk and matenality, facilitate plan- ning and supervision and clarify the con- cept of audit evidence. EXPECTED BENEFITS OF THE STANDARDS The standards are designed to result in more effective audits as a result of better risk assessments and improved design and performance of audit procedures to re- spond to the risks. Auditors will be able to focus on those areas where the risk of misstatement is the greatest. Exhibit 1 The Audit Risk Standards • SAS no. 104, Amendment to Statement on Auditing Standards No. 1, Codification of Auditing Standards and Procedures ("Due Professional Care in the Performance ojWork") m SAS no. 105, Amendment to Statement on Auditing Standards No. 95, Generally Accepted Auditing Standards • SAS no. 106, Audit Evidence
- 8. m SAS no. 107, Audit Risk and Materiality in Conducting an Audit • SAS no. 108, Planning and Supervision u SAS no. 109, L/nderslanding the Entity and Its Environment and Assessing the Risks of Material Misstatement m SAS no. 110, Performing Audit Procedures in Response (o Assessed Risks and Evaluating the Audit Evidence Obtained m SAS no. I l l , Amendment to Statement on Auditing Standards No. 39, Audit Sampling The new standards also clarify the phrase "sufficient knowledge of mtemal control to plan the audit" as used in the professional hterature. A resulting benefit is that the auditor will have a better basis for determining the nature, timing and ex- tent of further procedures and assessing potential fraud risks- In addition, the standards emphasize the use of assertions to link the risks, con- trols, audit procedures and conclusions. Auditors can use this technique to deter- mine whether audit procedures are re- sponsive to identified risks
- 9. SAS no. 107 makes it clear that the overall objective of an audit is to provide reasonable assurance that the financial July 2006 Joumal of Accountancy 43 A U D I T I N G statements are free of materiai misstate- ment. The term reasonable assurance has been subject to varying interpretations, but has now been clarified by the ASB as meaning a high, although not absolute, level of audit assurance. To ensure that management, those charged with governance and the auditor agree on what the audit will involve, SAS no. 108, Planning and Supervision, says that the auditor should have a written under- standing with the client regarding the terms of the engagement (see "The Heart of the Matter," at right). MATERIALITY In the performance of a GAAS audit, the auditor must assess materiality and audit risk. Although the concept of materiahty relates to auditing, it is rooted in ac- counting and user needs. SAS no. 107, Audit Risk and Matenality in Conducting an Audit, identifies the user as having, among other attributes, a knowledge of business activities and ofthe limitations that mate-
- 10. riality and estimation place on an audit and a willingness to study the financial statements. SAS no. 107 clarifies that when auditors assess materiahty, they should consider the needs of users as a group, not just those of specific individuals. While the standards do not suggest spe- cific materiality benchmark percentages, they do suggest the common benchmarks of income, revenues and assets. For ex- ample, profit-oriented entities may use an income-based materiality Forthcoming The Heart ofthe Matter • SAS no. 107, Audit Risk and Materi- ality in Conducting an Audit, makes clear that the overaii objective of an audit is to provide reasonable assur- ance—a high, but not absolute level of assurance—that the financial state- ments are free of material misstatement. • SAS no. 108, Planning and Supervi- sion., says that the auditor shouid have a written understanding with the client regarding the terms ofthe engagement. AICPA audit guides on risk assessment and audit sampling will provide more detailed information regarding the establishment of appropriate benchmarks. Due to the possible aggregating effects of immaterial misstatements and the need to opine at a low risk, auditors should
- 11. design procedures at the account- or stream-of-transactions level, using a test threshold that is lower than the overall ma- teriahty level. RISK ASSESSMENT This phase ofthe audit process is not just a planning tool, but an integral part of ev- idence gathering. Since risk assessment di- rects the auditor's attention to issues that merit further consideration, it should be based on the inquiries, observations and audit evidence gathered by the auditor; this gathering and documentation of evi- dence is important. Generally, simple in- quiries of management are an insufficient basis for this assessment. In addition, ac- cording to SAS no. 109, L/ndersfanding the Entity and Its Envi ronment and Assessing the Risks of Material Misstatement, risk assess- ment procedures alone are not a sufficient basis for rendering the audit opinion. As part of the risk assessment process, the engagement team should hold a brain- storming session to consider the nature and magnitude of possible misstatement risks. This session may be combined with the brainstorming session on fraud risks required by SAS no. 99, Consideration of Fraud in a Einancial Statement Audit. To meet this requirement, a sole practitioner migbt challenge himself or herself to be objective and critical when updating past risk assessments and documenting
- 12. changes in the business environment, Whiie not intended as a checklist of all factors, appendix C to SAS no. 109 pro- vides specific examples of risks for con- sideration. This list, plus other factors identified in the standards, may facilitate productive discussions during the brain- storming session. These factors have roots in business risks that in the past have led to audit issues. It IS expected that on every audit the auditor will identify one or more signifi- cant risks before considering related con- trols. For example, a significant invento- ry of precious metals or gems might be a significant risk in an audit of a jewelry business. In other businesses, such risks EXECUTIVE SUMMARY • The new audit risk standards re- quire the auditor to understand and respond to risks of matwial mis- statement, whether due to errors or fraud. In reaching that understand- ing, auditors should identify risks to the entity's business and the con- trols in place to mitigate them. • These standards use the more sharply defined terms must, should and may from SAS no, 102, Defining Professional Requirements in Statements on Auditing Standards.
- 13. • Because these standards ad- dress many issues at the core of auditing, they may significantly af- fect the formality of the risk as- sessment process and documen- tation of the assessment details, depending on how this has been done in the past, • Entities and auditors will max- imize their effectiveness and effi- ciency if they carefully plan their responses to the new require- ments. The documentation and assessment of controls over fi- nancial reporting is a good place for them to begin such efforts. • The AICPA is creating a num- ber of educational products de- signed to help auditors imple- ment the new standards, John A. Fogarty, CPA, Auditing Standards Board chairman, is a partr^er oi Deloitte and Touche LLP and a member of the International Auditing and Assurance Standards Board. His e-mail address is [email protected] Lynford Graham, CPA, PhD, CFE, is a con- sultant, recent former member of the ASB and Risk Assessment Standards Task Force and chair of the Risk -'Assessment and Risk Re-
- 14. sponse Audit Guide Task Force; his e-mail address is [email protected] verizon.net. Darrel R. Schubert, CPA, is a partner in Ernst & Young LLP's national professional practice and risk management group and was chair of the Risk Assessment Standards Task Force; his e-mail address is [email protected] 44 Joumal of Accountancy July 2006 AU D I T I NG may arise due to unique transactions, ad- justments or critical accruals, such as the estimation of highly subjective al- lowances. For significant risks, the audi- tor should (1) consider the design and im- plementation of related controls, (2) avoid reliance on analytical procedures alone and (3) rely on evidence gathered only in the current period for controls assurance. By their nature, some risks may have especially pervasive effects on financial re- porting. For example, one risk may be as- sociated with the weak business back- ground of those charged with governance (that is, the ovraers or a group such as the board of directors). This type of overall risk can affect many ac- counts and measures, but others relate more to specific accounts and
- 15. assertions. For example, a risk of misstatement of inventory amounts due to obsolescence risk in a line of inventory prod- ucts would be related to the valuation assertion for that account. Both these types of risks—overall and assertion-based—may affect auditors' ac- tions and procedures, but in different ways. An overall audit risk might require a more experienced engagement team, while the obsolescence risk in inventory may require specific, directed procedures, such as a more detailed analysis of prod- uct demands and inventory turnover. LINKING RISKS AND PROCEDURES An important requirement in these stan- dards is the need to link identified risks to relevant controls and to the audit actions designed to respond to these risks. Such a linkage helps the audit team determine whether the risks are addressed, assists in communication on the audit and helps re- viewers, including peer reviewers, follow the implementation of the audit strategy. In practice, simpler audits may ac- complish this linkage through careful cross-referencing of audit documentation. For more complex situations, this linkage
- 16. As part of the risk assessment process, the engagement team should hold a brain- storming session to consider the nature and magnitude of possible misstatement risks. may be supplemented by a planning or en- gagement strategy memo or matrix. In heightening the importance of using assertions to link risks, the standards also have revisited the assertions in the litera- ture and expanded them to articulate pres- entation and disclosure issues. The specific assertions listed in SAS no. 106, Audit Ev- idence (see exhibit 2, below), do not have to be used if auditors employ assertions that are essentially equivalent. INTERNAL CONTROLS The auditor should have a basis for his or her assessment of controls, such as a review of the design of controls over significant ac- counts and assertions, and a confirmation they are in operation by a walk-through or obser- vation. The auditor cannot default to a high control-risk assump- tion without performing the required elements of
- 17. a controls assessment. Additionally, vtath- out some assurance that the information in the accounting sys- tem is being generated properly, there is no basis to rely on analytical relationships of accounts or other financial data that are stored within the system. Auditors should assess how all five components of internal control over fi- nancial reporting relate to the entity being audited (see the Committee on Sponsor- ing Organizations of the Treadway Com- mission's [COSO] framework; www. coso.org/key.htm). This does not mean that auditors are required to test or rely on controls as part of their audit strategy, for- merly referred to as the audit approach. But the auditor should assess the design of the controls and examine some evidence that the controls have been properly imple- mented on all audits. Auditing standards focus on the con- trols over financial reporting, but COSO's 1992 Internal Control—Integrated Frame- work (www.coso.org/publicadons/exec- utive_suminary_integrated_framework. htm) also discusses regulation and oper- ations. These other elements are relevant only if they affect financial reporting. For example, a failure to comply with regula-
- 18. tory requirements could affect contingen- cies or even the going concern assumption (see "COSO Framework—The Five Com- ponents," page 46). How this requirement is implemented can have a significant effect on the entity's costs, particularly in the first year. For ex- ample, an auditor might evaluate whether the internal controls achieve the COSO control objectives and consider the risks of what could go wrong if the controls were ineffective. This evaluation should re- late objectives, risks and controls by as- senion to determine that all these elements Exhibit 2 SAS No. 106 Financial Statement Assertions I1 Transaction Occurrence Completeness Accuracy Cutoff Classification Balance Existence Rights and obligations Completeness
- 19. Valuation and allocation — Presentation • and disclosure 1 Occurrence and rights and obligations Completeness Classification and m understandability ^ Accuracy and valuation — July 2006 Journal of Accounlancy 45 A U D I T I N G are synchronized. Only significant ac- counts and processes would generally be addressed using this analysis. For exam- ple, controls over major revenue and ex- pense streams would be assessed for most entities, but those over treasury transac- tions might not be assessed in an entity where such transactions are infrequent, not material, and will be fully validated by substantive procedures.
- 20. Evidence that a control has been im- plemented can be obtained in a walk- through that follows transactions from their inception through the aggregation process in the ledger. Alternatively, such evidence of implementation can be ob- tained by observing the operation of a con- trol at the various stages of the control process—for example, at a specific time or over one or more specific documents, or by examining the sign-off of a control op- eration that verifies the agreement of an in- voice with a list of approved vendors. Smaller entities often have less formal- ly documented controls. Also, in smaller entities it is easy to overlook the hands-on role some senior members of management may play in mtemal control, either in monitoring controls or in performing con- trols directly The use of control objectives or an equivalent, along with simple flowcharts that can be related to the objectives, often may provide more efficient documentation than narratives or complex flowcharts. Phasing in the development of efficient COSO Framework- The Five Components IJi Monitorii information & Communication
- 21. Control Activities Risk Assessment Envi Why and How Guidance Has Changed The eight audit risk standards, SAS nos. 104-111, respond to the conclusionsof the Joint Risk Assessments Task Force of the ASB and the International Au-diting and Assurance Standards Board and to recommendations of the August 2000 report of the Panel on Audit Effectiveness of the Public Oversight Board and con- sider the results of "Developments in the Audit Methodologies of Large Accounting Firms," a May 2000 study of audit practices in three countries. These standards, originally exposed in December 2002, were re- exposed in 2005 after further refinement. They use the more sharply defined terms must, should and may from SAS no, 102, Defining Professional Requirements in Statements on Auditing Standards (see "Official Releases," Jo/A, Mar.O6, page 94), The eight standards were published in "Oflicial Releases," Jo/A, MayO6, page 112, documentation today, prior to the effective date of the standards, can save audit time and expense (see "Control Objective Based Documentalion," below), COSO's October 2005 draft report.
- 22. Guidance for Smaller PubUc Companies: Re- porting on Internal Controls over Financial Reporting, suggested that using control principles in conjunction with other sub- attributes can be an efficient documenta- tion framework for smaller companies. Whether companies or auditors use the original COSO control objectives, or some variation at a higher level of aggregation of the objectives, the end result should be the same. The auditor should be able to iden- tify control design gaps that could have sig- nificant consequences for the entity Simply using checklists of possible con- trols to identify design deficiencies or miss- ing controls may be inefficient because they may incorrectly lead to the expecta- tion that all controls on the list are need- ed to achieve the entity control objectives. Explaining how the entity achieves the rel- evant control objective and mitigates the related tisk can make the documentation more effective and efficient. Identified significant deficiencies and material weaknesses must be reported to management and those charged with gov- ernance. The ASB recently approved SAS no. 112, Communicating Internal Control Related Matters Identified in an Audit (see Official Releases, page 97), a revision of
- 23. SAS no. 60, Communication of Internal Con- trol Related Matters Noted in an Audit, to de- fine the auditor's responsibility to do tbis. Because of the need to assess controls, including information technology (IT) general controls, some auditors may need to engage a specialist to assist in the as- sessment process, especially when the IT environment is complex or the auditor ex- pects to rely on automated controls and has limited resources to address the issues. When the auditor's strategy is to signifi- cantly rely on some or all of the entity's controls, they should be tested. The next article on this topic will discuss testing controls more fully The minimum design and implemen- tation work can provide some basis for varying the nature, timing and extent of the procedures planned. That is because the procedures that confirm implemen- Control Objective Based Documentation • Control objective Saies are valid, • Risks Because of credit-card fraud, the transaction may not produce revenue. • Assertions
- 24. Occurrence: Did a valid sale occur? • Company controls • Pre-sale credit card validation is in place. • Close monitoring of past defaults. • Assessment m The control design is effective. • A walk-through of procedures con- firmed these controls are in place. • Reference to other supporting v/ork- papers {not illustrated). 4 6 Journal of Accountancy July 2006 A U D I T I N G tation also titay provide some evidence of operating effectiveness at the time the test is conducted. For example, some auditors refer to a walk-through as a test of one that—if it is ihe only evidence gathered— is a minimal basis for any reliance. How- ever, the assurance that can be placed on controls is a continuum based on the ev- idence that was gathered to support the assessment thaL controls are operating effectively. The requirement to assess controls for
- 25. audit purposes should not be confused with the attest service of reporting on in- ternal controls. Such engagements would likeiy involve the assessment of controls over more processes and accounts, assume a significantly greater amount of docu- mentation of controls by the entity and re- quire testing by tbe auditor when opining on effectiveness. RISK OF MATERIAL MISSTATEMENT This is the combination of the assessments of risks and related controls. Auditors may assess these two risks together or sepa- AICPA RESOURCES CPE Auditor's Risk Assessment Process: Tackling the New Risk Assessment SASs (text, # 732990JA; DVD/manual #182990JA). Publications • Risk Assessment Suite of Standards (paperback, # 060704JA). • Codification of Statements on Auditing Standards (paperback, # 057200JA). • Audit Risk Alert, Understanding the New Auditing Standards Related to Risk Assessment (paperback, # 022526JA}. • Risk Assessment Standards & Guidance Set (paperback, # 990103HIJA). For more information or to place an order,
- 26. go to www.cpa2biz.com or call 800-777- 7077, Web site • Summary of the eight audit risk assessment standards, SAS nos. 104-111, www.aicpa.org/risk. rately, although, for practical reasons, the components often are assessed separate- ly. The risk of material misstatement forms the theoretical starting point for design- ing further audit procedures including tests of controls, analytical procedures and tests of details. WHAT'S NEXT The AICPA is creating a number of edu- cational products to help auditors im- plement the new standards, including a recently issued audit rtsk alert, Under- slanding the New Auditing Standards Relat- ed to Risk Assessment, and an audit guide, as well as presentations and discussions on the topic at a numher of AICPA confer- ences and new CPE courses. A second article on this topic will dis- cuss designing further audit procedures, the process of summarizing audit results and drawing conclusions. • Practical Tips • Studythe concepts of the COSO internal control framework now and be
- 27. familiar with its components and how it applies to clients, • If you have another audit cycle between now and the effective date of these standards, consider control risks more thoroughly and the docutnenta- tion that will be necessary to support ,. your audit under the new standards, • Be alert for the"smaller companies" guidance expected to be forthcoming from the COSO project in the second quarter ofthis year. Identify cost'and effort-saving opportunities to apply this guidance and assist clients in strengthening controls, • Consider whether the audit has ad- dressed all of the relevant assertions for all important accounts and transaction streams. Pay attention to any practice aids that employ assertions, atid learn how they can be used to build a link be- tween the risks and audit procedures. • Start now to btiiltl' 'assertions-based" terminology into engagement team discussions to generate familiarity. Prescribe the NEW Peachtree for your clients committed to "getting the numbers right."
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- 30. Qftd TiBctofnviu «iradnnarks of ge So^B f t Dtt Sage S i rnendarwd h«w i an July 2006 Journal of Accountancy 49 1 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund THE TYRONCO FOUNDATION COSO Glenn E. Sumners, DBA, CIA Sumners Audit Services
- 31. Not everything that can be counted counts, and not everything that counts can be counted. – Albert Einstein This project was funded through a grant from the Internal Auditing Academic Advancement Fund Inc. supporting The
- 32. IIA’s Internal Audit Education Partnership (IAEP) program LSU CENTER FOR INTERNAL AUDITING 2 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund The Tyronco Foundation operates worldwide to provide food and medicine to needy individuals in third world countries. Thirteen countries currently receive assistance through the program. The number of individuals that have benefited has increased from 407,000 in 1990 to over 721,000 in 2010. Data for current years is still being tabulated for annual
- 33. reporting. Contributions are received from foundations, agencies, governments and individuals. Tyronco outsources the marketing and collection processes. The marketing agency publicizes the benefits and collects the donations. The bylaws require that 75% of the funds collected be distributed to directly benefit the needy (benefit expenses). The administration expenses cannot exceed 25% of contributions. The CEO has recently determined that distribution costs should be reclassified from administrative expense to benefit costs since distribution is a benefit to the needy. Tyronco’s marketing efforts highlight the guaranteed high percent payoff to the needy. The governing agencies of several countries require that the attest auditors include the 75% goal in the financial audit. Background Information The results of your preliminary work are outlined below:
- 34. ‣ Board-Audit Committee: The 13 board members are prominent celebrities, politicians, and business people. Bernie Lay serves as both the Chairman of the Board and CEO. Bernie was the CFO for five years before being appointed as the CEO. The board members are selected by the Chairman of the Board and approved by a majority of the Board. The five-member audit committee includes the Chairman of the Board and four members appointed by the Chairman for a three year term. The Board also includes a nominating committee, a risk committee and a compensation committee. The Board and the subcommittees meet for one day each quarter. The CFO is responsible for the agenda and financial reports. THE Chief Audit Executive (CAE) and the external audit partner share a one-hour slot on the agenda at each meeting. ‣ Chief Executive Officer: The CEO, Bernie Lay, has a military background and has established an autocratic
- 35. management style. He feels that this approach will develop a more efficient and effective structure for a decentralized organization. ‣ Chief Financial Officer: Scott Z. Best, the CFO, previously served as the supervisor of accounts payable and was promoted by the CEO. He was the manager in charge of the Tyronco account when he worked for the attest auditors. He maintains a good working relationship with Temple and Duncan, a small regional firm in Geneva. 3 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund ‣ Operating Management: Each participating country has an operating manager selected by the CEO. The managers
- 36. report directly to the CFO. ‣ Internal Audit: Martha N. Cider, the Chief Audit Executive, served as the lead auditor on the Tyronco engagement when she worked for Temple & Duncan. She was hired because of her knowledge of the financial aspects of Tyronco. As part of a cost-cutting move she reduced the audit staff from 21 to 13 and cosources the collections, payables, and purchasing audits to Temple & Duncan. The reduction in staff was explained by increased usage of the data-mining technology. Martha was in the MBA program with Bernie and Scott and is considered a rising star in the organization. Management requests from the CEO and CFO consume about 90% of available audit time. The CEO feels that the auditors should be able to complete their audits from the headquarters location by utilizing technology. He has reduced the travel
- 37. budget but significantly increased the budget for systems training and audit software. The hiring focus is now on systems knowledge. ‣ External Auditors: Temple and Duncan (T&D) have been the low bidder the last three times the organization has requested attest proposals. The external auditor proposals are reviewed by the CFO who recommends a firm to the Audit Committee for approval. Tyronco represents 60% of T&D’s audit revenues and 80% of their consulting revenues. ‣ Purchasing: The purchasing function is decentralized with a purchasing agent located in each of the 13 countries that qualify for food and non-prescription medicine. The Vice-President of Purchasing at headquarters has requested that the 13 purchasing agents purchase 50% of all items from vendors located in the same country as the recipients. The agents operate somewhat autonomously and can sole-source or utilize
- 38. competitive bids. Local purchases are typically 20-30% higher than obtained through a competitive bid process. The CEO supports this approach since he feels that it establishes good relations with local government officials and business people. 4 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund ‣ Warehouse: The receiving clerks and distribution managers report to the Purchasing Agent. Inventory status reports are issued quarterly to the V.P. of Purchasing who prepares a summary report for the CEO & CFO.
- 39. The quarterly purchasing reports from the purchasing agents to Headquarters are provided on the following spreadsheet. Total Vendor Description The primary headquarters control and review is a comparison of budget to actual. Purchasing Agents are provided with a quarterly budget generally based on demographics of the recipients. Adjustments are made to the budget based on actual contributions received from countries, organizations, foundations, and personal sponsors. The overall increase in purchases has been approximately 13% per year but varied from a low of +7% to a high of +21% between countries. The summary quarterly reports are approved by the country
- 40. manager and forwarded to the CFO with the quarterly financial statements for review and approval. Requirements The audit programs that you will develop should have two sections to facilitate a top-down audit approach: 1. Organization 2. Purchasing This approach is suggested since the organization’s evaluation of risk, controls, and corporate governance is the foundation for the audit of the purchasing function. Requirement #1:
- 41. Based on the above background, develop a COSO-based audit program. The audit program should address the following COSO objectives as applicable: ‣ Operational: 5 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund ‣ Financial: ‣ Compliance: The organization audit program should be classified to align with the five COSO components:
- 42. ‣ Control Environment ‣ Risk Assessment ‣ Control Activities ‣ Monitoring ‣ Information and Communication To provide a consistent framework for comparing solutions; please use the following component subsections: 1. Control Environment ‣ Integrity and ethical values 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________
- 43. _____________________________________________________ ‣ Commitment to competence 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ ‣ Board and Audit Committee 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________
- 44. _____________________________________________________ 6 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund ‣ Management philosophy and operating style 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ ‣ Organization Structure
- 45. 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ ‣ Assignment of authority and responsibility 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________
- 46. ‣ Human resource policies and practices 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ 2. Risk Assessment ‣ Company-wide objectives 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________
- 47. _____________________________________________________ 7 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund ‣ Process-level objectives 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________
- 48. ‣ Risk identification 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ ‣ Managing change 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________
- 49. _____________________________________________________ 3. Control Activities ‣ Policies and procedures 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ ‣ Segregation of duties 1. _____________________________________________________ _____________________________________________________
- 50. 2. _____________________________________________________ _____________________________________________________ 8 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund ‣ Periodic reconciliation 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________
- 51. _____________________________________________________ ‣ Proper authorization 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ ‣ Transactions recorded 1. _____________________________________________________ _____________________________________________________ 2.
- 52. _____________________________________________________ _____________________________________________________ ‣ Safeguarding assets 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ 4. Information and Communication ‣ Quality of information 1. _____________________________________________________
- 53. _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ 9 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund ‣ Effectiveness of communication 1. _____________________________________________________ _____________________________________________________
- 54. 2. _____________________________________________________ _____________________________________________________ 5. Monitoring ‣ On-going monitoring 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ ‣ Evaluation process 1.
- 55. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ ‣ Reporting control and process deficiencies 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ ‣ Change management process
- 56. 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ 10 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund Requirement #2: Identify the five major risks in the Purchasing Department. List
- 57. the controls you would expect to find to mitigate the risks and the audit steps that would be utilized to ascertain that the control mitigates the risk. Purchasing Risk At Risk Control COSO Classification Audit Step 1. 2.
- 58. 3. 4. 5.
- 59. 11 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund Requirement #3: List one or two audit steps that you would perform in each of the six listed sections: Procurement Audit 1. General: 1. _____________________________________________________
- 62. 5. Invoice Processing: 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ 12 The Tyronco Foundation©2013 Internal Auditing Academic Advancement Fund
- 63. 6. Accounts Payable, Encumbrances, or Obligations: 1. _____________________________________________________ _____________________________________________________ 2. _____________________________________________________ _____________________________________________________ Requirement #4: List five major risks specifically related to Tyronco. What would be your five major areas of concern as an internal auditor? 1. _____________________________________________________ ______________________
- 65. 5. _____________________________________________________ ______________________ _____________________________________________________ ______________________ Rubic_Print_FormatCourse CodeClass CodeAssignment TitleTotal PointsACC-491ACC-491-O500CLC - Tyronco Foundation COSO Case Study50.0CriteriaPercentage1: Unsatisfactory (0.00%)2: Less Than Satisfactory (65.00%)3: Satisfactory (75.00%)4: Good (85.00%)5: Excellent (100.00%)CommentsPoints EarnedCriteria100.0%Completed Case14.0%A completed case is not presented.NANANAA completed case is presented.Auditing Standards14.0%An explanation of which auditing standards were included in the case study and how this provides insight into a career in accounting is not presented.An explanation of which auditing standards were included in the case study and how this provides insight into a career in accounting is presented, but does not demonstrate a clear understanding of auditing standards.An
- 66. explanation of which auditing standards were included in the case study and how this provides insight into a career in accounting is presented.An explanation of which auditing standards were included in the case study and how this provides insight into a career in accounting demonstrates a clear understanding of auditing standards.An explanation of which auditing standards were included in the case study and how this provides insight into a career in accounting demonstrates a superior understanding of auditing standards.Working With a Client14.0%An explanation of how the information presented in the case study would help the student in determining whether to continue to work with a client is not presented.An explanation of how the information presented in the case study would help the student in determining whether to continue to work with a client is presented, but lacks detail or is incomplete.An explanation of how the information presented in the case study would help the student in determining whether to continue to work with a client is presented.An explanation of how the information presented in the case study would help the student in determining whether to continue to work with a client is detailed.An explanation of how the information presented in the case study would help the student in determining whether to continue to work with a client is thorough.COSO Framework14.0%An explanation of how the COSO framework relates to auditing standards is not presented.An explanation of
- 67. how the COSO framework relates to auditing standards is presented, but lacks detail or is incomplete.An explanation of how the COSO framework relates to auditing standards is presented.An explanation of how the COSO framework relates to auditing standards is detailed.An explanation of how the COSO framework relates to auditing standards is thorough.Audit Risk14.0%An explanation of how the completion of this exercise impacts audit risk is not presented.An explanation of how the completion of this exercise impacts audit risk is presented, but lacks detail or is incomplete.An explanation of how the completion of this exercise impacts audit risk is presented.An explanation of how the completion of this exercise impacts audit risk is detailed.An explanation of how the completion of this exercise impacts audit risk is thorough.Thesis Development and Purpose7.0%Paper lacks any discernible overall purpose or organizing claim.Thesis is insufficiently developed or vague. Purpose is not clear.Thesis is apparent and appropriate to purpose.Thesis is clear and forecasts the development of the paper. Thesis is descriptive and reflective of the arguments and appropriate to the purpose.Thesis is comprehensive and contains the essence of the paper. Thesis statement makes the purpose of the paper clear.Argument Logic and Construction8.0%Statement of purpose is not justified by the conclusion. The conclusion does not support the claim made. Argument is incoherent and
- 68. uses noncredible sources.Sufficient justification of claims is lacking. Argument lacks consistent unity. There are obvious flaws in the logic. Some sources have questionable credibility.Argument is orderly, but may have a few inconsistencies. The argument presents minimal justification of claims. Argument logically, but not thoroughly, supports the purpose. Sources used are credible. Introduction and conclusion bracket the thesis.Argument shows logical progression. Techniques of argumentation are evident. There is a smooth progression of claims from introduction to conclusion. Most sources are authoritative.Clear and convincing argument presents a persuasive claim in a distinctive and compelling manner. All sources are authoritative.Mechanics of Writing (includes spelling, punctuation, grammar, language use)5.0%Surface errors are pervasive enough that they impede communication of meaning. Inappropriate word choice or sentence construction is used.Frequent and repetitive mechanical errors distract the reader. Inconsistencies in language choice (register) or word choice are present. Sentence structure is correct but not varied.Some mechanical errors or typos are present, but they are not overly distracting to the reader. Correct and varied sentence structure and audience- appropriate language are employed.Prose is largely free of mechanical errors, although a few may be present. The writer uses a variety of effective sentence structures and figures of
- 69. speech.Writer is clearly in command of standard, written, academic English.Paper Format (use of appropriate style for the major and assignment)5.0%Template is not used appropriately, or documentation format is rarely followed correctly.Appropriate template is used, but some elements are missing or mistaken. A lack of control with formatting is apparent.Appropriate template is used. Formatting is correct, although some minor errors may be present.Appropriate template is fully used. There are virtually no errors in formatting style.All format elements are correct.Documentation of Sources (citations, footnotes, references, bibliography, etc., as appropriate to assignment and style)5.0%Sources are not documented.Documentation of sources is inconsistent or incorrect, as appropriate to assignment and style, with numerous formatting errors.Sources are documented, as appropriate to assignment and style, although some formatting errors may be present.Sources are documented, as appropriate to assignment and style, and format is mostly correct.Sources are completely and correctly documented, as appropriate to assignment and style, and format is free of error.Total Weightage100%
- 70. Tyronco COSO Case Study Template The case study to be used for completion of this assignment is being used with permission from Internal Auditing Foundation (IIA). Directions: After reviewing the Tyronco COSO Case Study, use this template to complete the Topic 1 assignment. Requirements The audit programs that you will develop should have two sections to facilitate a top-down audit approach: 1. Organization COSO Evaluation 2. Purchasing COSO Evaluation This approach is suggested since the organization’s evaluation of risk, controls, and corporate governance is the foundation for the audit of the purchasing function. Part 1: Develop a COSO-based audit program
- 71. Based on the background information provided in the case study document, develop a COSO-based audit program. The audit program should address the following COSO objectives as applicable: 1.Operational: Effectiveness and efficiency of operations. 2. Financial: Reliability of information. 3. Compliance: Compliance with applicable laws and regulations. The organization audit program should be classified to align with the five COSO components: 1. Control Environment 2. Risk Assessment 3. Control Activities 4. Monitoring 5. Information and Communication To provide a consistent framework for comparing solutions; please use the following component subsections: 1. Control Environment
- 72. Integrity and ethical values A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ Commitment to competence A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________
- 73. Board and Audit Committee A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ Management philosophy and operating style A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________
- 74. Organization Structure A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ Assignment of authority and responsibility A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ Human resource policies and practices
- 75. A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ 2. Risk Assessment Company-wide objectives A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________
- 77. Managing change A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ 3. Control Activities Policies and procedures A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________
- 78. Segregation of duties A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ Periodic reconciliation A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________
- 80. A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ 4. Information and Communication Quality of Information A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________
- 81. Effectiveness of communication A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ 5. Monitoring On-going monitoring A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________
- 82. Evaluation process A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ Reporting control and process deficiencies A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________
- 83. Change management process A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ Part 2: Purchasing Department Identify the five major risks in the Purchasing Department. List the controls you would expect to find to mitigate the risks and the audit steps that would be utilized to ascertain that the control mitigates the risk. Purchasing
- 84. Risk At Risk Control COSO Classification Audit Step 1. 2.
- 85. 3. 4. 5.
- 86. Part 3: Audit Steps List one or two audit steps that you would perform in each of the six listed sections: Procurement Audit General A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ Requisitioning A.
- 88. ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ Invoice Processing A. _____________________________________________________ ___________________ _____________________________________________________ ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ Accounts Payable, Encumbrances, or Obligations A. _____________________________________________________ ___________________ _____________________________________________________
- 89. ___________________ B. _____________________________________________________ ___________________ _____________________________________________________ ___________________ Part 4: Risks related to Tyronco List five major risks specifically related to Tyronco. What would be your five major areas of concern as an internal auditor? 1. _____________________________________________________ ___________________ _____________________________________________________ ___________________ 2. _____________________________________________________ ___________________ _____________________________________________________ ___________________
- 90. 3. _____________________________________________________ ___________________ _____________________________________________________ ___________________ 4. _____________________________________________________ ___________________ _____________________________________________________ ___________________ 5. _____________________________________________________ ___________________ _____________________________________________________ ___________________ © 2020. Grand Canyon University. All Rights Reserved. NameAssignment completed by: If you worked in groups, ALL group members MUST have place their names on this page. Then EACH group member should submit the homework.
- 91. Q1Data on Various Household Financial VariablesHouseholdFamily_SizeLocation Christopher J. Zappe, Ph.D.: Location of residence within the given city: 1=SW sector, 2=NW sector, 3=NE sector, and 4=SE sector. Ownership Christopher J. Zappe, Ph.D.: 0= rent home (house or apartment) or 1= own home. First_Income Christopher J. Zappe, Ph.D.: Annual income of first household wage earner. Second_Income Christopher J. Zappe, Ph.D.: Annual income of second household wage earner (if applicable). Monthly_Payment Christopher J. Zappe, Ph.D.: Monthly home mortgage payment or rent payment.
- 92. Utilities Christopher J. Zappe, Ph.D.: Average monthly expenditure on utilities. Debt Christopher J. Zappe, Ph.D.: Total indebtedness (excluding home mortgage) in dollars. Age Michael H. Way: Age of the "head" of the household: young adult (20-39); middle-age (40-59); senior (60 and older).1221$58,206$38,503$1,585$252$5,692Middle- Age2620$48,273$29,197$1,314$216$4,267Young Adult3340$37,582$28,164$383$207$2,903Senior4111$56,610$ 1,002$249$3,896Middle- Age5330$37,731$21,454$743$217$3,011Young Adult6410$30,434$26,007$991$208$3,718Senior7111$47,969$ 849$243$5,907Young Adult8111$55,487$752$242$2,783Young Adult9321$59,947$1,498$256$6,275Middle- Age10610$36,970$31,838$991$222$4,845Middle- Age11111$53,113$1,163$251$5,267Young Adult12340$27,350$20,969$619$209$2,256Senior13111$48,06 4$1,434$250$3,918Middle-
- 112. Q3Last NameFirst NamePosition Michael H. Way: This variable identifies the player's primary position. For those who don't follow hockey: C = centre R = right wing L = left wing D = defenseman G = goaltenderSalary Michael H. Way: The player's salary for the season, in US$. ForsbergPeterC$11,000,000SakicJoeC$9,832,727BlakeRobertD$ 9,285,194RoyPatrickG$8,500,000FooteAdamD$4,200,000Hejdu kMilanR$2,700,000DruryChrisC$2,500,000KeaneMikeR$1,500, 000de VriesGregD$1,375,000YelleStephaneL$1,200,000SkoulaMartin D$1,100,000TanguayAlexC$900,000MessierEricD$700,000Hino teDanR$600,000ParkerScottR$574,750AubinSergeC$500,000M uirBryanD$500,000PitlickLanceD$500,000ReinprechtStevenC$ 475,000AebischerDavidG$450,000LarsenBradL$423,500Willsie BrianR$423,500HahlRikuC$415,000VrbataRadimR$400,000 Q4
- 113. Please type your answers to question 4 here. Q5 Please type your answers to question 5 here. 5) _STDS_DG2E685C67NameData Set #1GUIDDG2E685C67Format RangeFALSEVariable LayoutColumnsVariable Names In CellsTRUEVariable Names In 2nd CellsTRUEData Set Ranges1Data Sheet Format1Formula Eval Cell1Num Stored Vars91 : InfoVG2978062Fvar1ST_HouseholdTRUE041 : Ranges101 : MultiRefs2 : InfoVG1C571486var2ST_FamilySizeTRUE042 : Ranges12 : MultiRefs3 : InfoVG33E57EAAvar3ST_LocationTRUE043 : Ranges13 : MultiRefs4 : InfoVG28D50A3Cvar4ST_OwnershipTRUE044 : Ranges14 : MultiRefs5 : InfoVG1E40085Fvar5ST_FirstIncomeTRUE045 : Ranges528475 : MultiRefs6 : InfoVG2E2AA31Evar6ST_SecondIncomeTRUE046 : Ranges06 : MultiRefs7 : InfoVG3A059CE1var7ST_MonthlyPaymentTRUE047 : Ranges6067 : MultiRefs8 : InfoVG26491A6Fvar8ST_UtilitiesTRUE048 : Ranges2148 :
- 114. MultiRefs9 : InfoVG25E3D7C5var9ST_DebtTRUE049 : Ranges17969 : MultiRefs