SUMMARY CASES,
PAPERS AND GUEST
LECTURES
Deloitte case
Course
Materiality = a benchmark to determine whether we should investigate something or not
We base our audit approach on materiality: the higher the risk, the lower the materiality level
The audit approach is always risk-driven
We need effective and efficient methods for risk detection
Kinds of risk identification
Inquiries of management
o Doorvragen voor diepere informatie
o CFO, CEO: responsability, strategy, targets, history
o HR-director= remuneration policies
o Board of Directors: base of review of the financials
o Legal director: based on assumption
o Those charged with governance
o Internal audit personnel: compare your own findings with theirs
o Employees
o Marketing or sales personnel: these are the people who ‘make’ the financials
o Ex. Launching a new product to the market
Marketingcosts increases
Divert expenses
Matching principle: cut off
Preliminary analytical reviews
o Financial statements on an preliminary state (examine them on an earlier date)
o You can compare them with:
Previous financial statements
With peers (rather not because this is external information)
Approved budget (discover where the chalanges are)
pag. 1
, o Both financial and non financial information
Number of employees
Strategy
References of products
Production performances
Qualities/quantities
Standstills (breakdowns) => investigate
Selling of fixed assets (machinery): gain, loss
Newspapers, articles,…
Available minutes
Quality of earnings: non recurring assets give a distorted image (important!)
Observation and inspection
o Observation: precedures to discover risk despite the controls
o Inspection: control wether the information they gave you was correct or not (spotchecks
= samples)
o Operational discussion
o Documents
o Reports
o Visisting facilities
o Ex.
What do you do when the system is not wordking? Do you have a back-up plan?
If a mistake can not be corrected, this is a red flag
Preparatory examples
Value of inventory of a large shipment (Boys & Toys)
There are a lot of complaints about toys on a certain shipment
You have to pay claims or pay people back their money
You don’t have to depreciate to zero
You have to talk to the tech guy and try to estimate how much you will have to pay back
Low control environment (Gass station)
What is recorded on paper doesn’t correspon with the reality
Ask when is a feasable period to check the inventory
Do a roll forward = control if the system works in the beginning of december and use is for the
end of december
Interestrate near to 0 (intercompany loans)
Will they pay the money back? Recoverability
pag. 2
, Seggregation of duties (sales department)
Sales is not thinking about wether the invoices are getting paid
Focus on the most risky catergory (schulden die al het langste openstaan, consult aging balance)
Potential legal case for polution (soil pollution)
Increase in provisions because there may come an expense
If you don’t know the exact amount, you have to mention it in the foodnotes
“things that require attention” in the auditor’s report
Spot market (French Fries)
Day-to-day prices VS. Fixed prices (contractually determined)
Operational risk
The inventory is normally based on costs
Goods movement (fraud)
Are the expenses business related?
Beginvoorraad + aankopen - verkopen = eindvoorraad?
Goods reconsiliation = invoices might be false (segragation of duties)
Manipulate financial statements with manual journal entries (sales transaction)
o Especially dangerous in holiday periods
Management override
Transfer pricing = at arm’s length principle
In place to avoid shifting profit
Seggregation of duties
People who need to combine tasks (responsibilities)
If there are no internal controls, yyou have to check more
Especially dangerous in small companies
pag. 3
PAPERS AND GUEST
LECTURES
Deloitte case
Course
Materiality = a benchmark to determine whether we should investigate something or not
We base our audit approach on materiality: the higher the risk, the lower the materiality level
The audit approach is always risk-driven
We need effective and efficient methods for risk detection
Kinds of risk identification
Inquiries of management
o Doorvragen voor diepere informatie
o CFO, CEO: responsability, strategy, targets, history
o HR-director= remuneration policies
o Board of Directors: base of review of the financials
o Legal director: based on assumption
o Those charged with governance
o Internal audit personnel: compare your own findings with theirs
o Employees
o Marketing or sales personnel: these are the people who ‘make’ the financials
o Ex. Launching a new product to the market
Marketingcosts increases
Divert expenses
Matching principle: cut off
Preliminary analytical reviews
o Financial statements on an preliminary state (examine them on an earlier date)
o You can compare them with:
Previous financial statements
With peers (rather not because this is external information)
Approved budget (discover where the chalanges are)
pag. 1
, o Both financial and non financial information
Number of employees
Strategy
References of products
Production performances
Qualities/quantities
Standstills (breakdowns) => investigate
Selling of fixed assets (machinery): gain, loss
Newspapers, articles,…
Available minutes
Quality of earnings: non recurring assets give a distorted image (important!)
Observation and inspection
o Observation: precedures to discover risk despite the controls
o Inspection: control wether the information they gave you was correct or not (spotchecks
= samples)
o Operational discussion
o Documents
o Reports
o Visisting facilities
o Ex.
What do you do when the system is not wordking? Do you have a back-up plan?
If a mistake can not be corrected, this is a red flag
Preparatory examples
Value of inventory of a large shipment (Boys & Toys)
There are a lot of complaints about toys on a certain shipment
You have to pay claims or pay people back their money
You don’t have to depreciate to zero
You have to talk to the tech guy and try to estimate how much you will have to pay back
Low control environment (Gass station)
What is recorded on paper doesn’t correspon with the reality
Ask when is a feasable period to check the inventory
Do a roll forward = control if the system works in the beginning of december and use is for the
end of december
Interestrate near to 0 (intercompany loans)
Will they pay the money back? Recoverability
pag. 2
, Seggregation of duties (sales department)
Sales is not thinking about wether the invoices are getting paid
Focus on the most risky catergory (schulden die al het langste openstaan, consult aging balance)
Potential legal case for polution (soil pollution)
Increase in provisions because there may come an expense
If you don’t know the exact amount, you have to mention it in the foodnotes
“things that require attention” in the auditor’s report
Spot market (French Fries)
Day-to-day prices VS. Fixed prices (contractually determined)
Operational risk
The inventory is normally based on costs
Goods movement (fraud)
Are the expenses business related?
Beginvoorraad + aankopen - verkopen = eindvoorraad?
Goods reconsiliation = invoices might be false (segragation of duties)
Manipulate financial statements with manual journal entries (sales transaction)
o Especially dangerous in holiday periods
Management override
Transfer pricing = at arm’s length principle
In place to avoid shifting profit
Seggregation of duties
People who need to combine tasks (responsibilities)
If there are no internal controls, yyou have to check more
Especially dangerous in small companies
pag. 3
