2026 NTU AC3104|Risk Management and Advanced Auditing-
Consolidated Exam Notes Updated Nanyang Technological
University
Table of Contents
SEMINAR 1.1 INTRODUCTION .................................................................................................................................................................................. 1
COSO (2017) VS ISO 31000 (2018) ...................................................................................................................................................................... 1
WHAT IS SYSTEM THINKING................................................................................................................................................................................ 1
CAUSAL LOOP DIAGRAM (CLD) .......................................................................................................................................................................... 1
APPLICATION OF SYSTEMS THINKING IN ERM .............................................................................................................................................. 1
SUMMARY OF ENTERPRISE RISK MANAGEMENT ......................................................................................................................................... 2
BENEFITS OF ERM.................................................................................................................................................................................................. 2
ERM COMPARED TO INTERNAL CONTROLS................................................................................................................................................... 3
SEMINAR 1.2 GOVERNANCE & CULTURE ............................................................................................................................................................. 4
COSO PRINCIPLE: GOVERNANCE & CULTURE .............................................................................................................................................. 4
FACTORS IMPEDING BOARD INDEPENDENCE............................................................................................................................................... 4
BUILDING A RISK-AWARE CULTURE ................................................................................................................................................................. 4
HARD VS SOFT CONTROLS ................................................................................................................................................................................. 5
THE SOFT SIDE OF CONTROLS: WHY CONTROLS FAIL .............................................................................................................................. 5
EY’S RISK CULTURE FRAMEWORK ................................................................................................................................................................... 5
SOLUTION - ACCESS EACH MECHANISM AND UNDERSTAND HOW THEY INFLUENCE BEHAVIOR................................................ 5
IMPORTANCE OF BOARD TO UNDERSTAND AND ASSESS CORPORATE CULTURE........................................................................... 6
CHALLENGES OF ASSESSING CORPORATE CULTURE ............................................................................................................................... 7
RISKS FACTORS USEFUL FOR INTERNAL AUDITOR TO EVALUATE CORPORATE CULTURE .......................................................... 8
CRITICAL SUCCESS FACTORS EXAMPLE...................................................................................................................................................... 10
SEMINAR 2.2 - STRATEGY & OBJECTIVE SETTING .......................................................................................................................................... 11
COSO PRINCIPLES: STRATEGY & OBJECTIVE SETTING ........................................................................................................................... 11
COSO ERM 2017 VS COSO ERM 2004 ............................................................................................................................................................. 11
EXAMPLE: APPLYING COSO .............................................................................................................................................................................. 11
VISION, MISSION AND STRATEGIC OBJECTIVES......................................................................................................................................... 11
WHY SET OBJECTIVES?...................................................................................................................................................................................... 11
CONSIDER EXTERNAL AND INTERNAL ENVIRONMENT AND STAKEHOLDERS .................................................................................. 12
SETTING TARGET AND TOLERANCE TO ALIGN WITH BUSINESS OBJECTIVES.................................................................................. 12
OLAM’S STRATEGIC OBJECTIVES ................................................................................................................................................................... 12
OLAM’S BALANCED SCORECARD (LINKING STRATEGIC OBJECTIVES TO OPERATIONAL OBJECTIVES) ................................... 13
RISK APPETITE ...................................................................................................................................................................................................... 13
WHY SET UPPER LIMIT FOR RISK TOLERANCE?......................................................................................................................................... 13
OPERATIONALIZING RISK APPETITE .............................................................................................................................................................. 14
MBZ CASE - ADOPTING A LOW COST STRATEGY ....................................................................................................................................... 14
OLAM’S STRATEGIC OBJECTIVES CASE STUDY ......................................................................................................................................... 15
ENABLERS TO ACHIEVE STRATEGIES ........................................................................................................................................................... 15
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,SEMINAR 3.1 - STRATEGIC RISK IDENTIFICATION ........................................................................................................................................... 16
COSO PRINCIPLES: PERFORMANCE .............................................................................................................................................................. 16
SWOT & PESTLE ANALYSIS ............................................................................................................................................................................... 16
SUPPLY CHAIN: EMERGING RISKS, MITIGATION STRATEGIES ............................................................................................................... 16
MAKING SUPPLY CHAIN MORE RESILIENT ................................................................................................................................................... 16
MANAGERS AND THEIR IMPACT ON STRATEGIC RISK MANAGEMENT ................................................................................................ 17
STRATEGIC RISK .................................................................................................................................................................................................. 17
LOBLAW CASE ....................................................................................................................................................................................................... 17
EXAMPLE OF ENTITY LEVEL BUSINESS MODEL (ELBM) ........................................................................................................................... 19
CHARACTERISTICS OF GROCERY CHAIN BUSINESS ................................................................................................................................ 19
AUDITOR: UNDERSTAND CLIENT’S DYNAMIC SYSTEM ............................................................................................................................. 19
SUSTAINABILITY.................................................................................................................................................................................................... 20
SEMINAR 3.2 - IDENTIFYING RISKS IN A BUSINESS PROCESS .................................................................................................................... 22
AREAS OF EMERGING AND CHANGING RISKS ............................................................................................................................................ 22
POSSIBLE RISKS ................................................................................................................................................................................................... 22
APPROACH TO IDENTIFY RISKS....................................................................................................................................................................... 22
HOW TO ANALYZE A BUSINESS PROCESS ................................................................................................................................................... 23
BOW TIE ANALYSIS .............................................................................................................................................................................................. 24
KEY RISK INDICATORS(KRI) AND KEY PERFORMANCE INDICATORS (KPI) ......................................................................................... 24
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, EXAMPLES OF RISKS AND KEY CORRESPONDING KRIs .......................................................................................................................... 24
EXAMPLES OF KEY PERFORMANCE INDICATORS (TAKEN FROM BALANCED SCORECARD) ........................................................ 25
IMPORTANCE OF USING LEADING INDICATORS ......................................................................................................................................... 26
BUSINESS PROCESS RISKS .............................................................................................................................................................................. 27
PROCESS ANALYSIS TEMPLATE ...................................................................................................................................................................... 28
SEMINAR 4.1 - PERFORMANCE 3: RISK ANALYSIS, EVALUATION & TREATMENT ................................................................................... 30
TYPES OF RISK (INTERNAL) .............................................................................................................................................................................. 30
ESTIMATING/ASSESSING RISK LIKELIHOOD AND IMPACT ON BOTH INHERENT AND RESIDUAL BASIS .................................... 31
ASSESSMENT TECHNIQUES - QUALITATIVE VS QUANTITATIVE............................................................................................................. 31
EXAMPLES OF RISK ASSESSMENT (QUANTITATIVE) ................................................................................................................................. 33
EXAMPLES OF RISK ASSESSMENT (QUALITATIVE) .................................................................................................................................... 33
INHERENT, RESIDUAL AND TARGET RISKS .................................................................................................................................................. 34
RISK RESPONSE (SHOULD HAVE A TIME FRAME) ...................................................................................................................................... 35
REASONS & EXAMPLES TO ASSESS AND DEVELOP RISK RESPONSES AT A PORTFOLIO LEVEL ............................................... 37
SEMINAR 4.2 - CONTROL ACTIVITIES AND ETHICAL RISK MANAGEMENT ................................................................................................ 38
IMPORTANCE OF ETHICS IN RISK MANAGEMENT ...................................................................................................................................... 38
WHY DOES SOUND RISK MANAGEMENT REQUIRE STRONG FOUNDATION IN ETHICS .................................................................. 38
KEY CHALLENGES OF ETHICAL RISK MANAGEMENT ................................................................................................................................ 39
ETHICAL REASONING .......................................................................................................................................................................................... 39
GUIDELINES ........................................................................................................................................................................................................... 40
ETHICAL RISK AND HOW TO MANAGE THEM ............................................................................................................................................... 40
WHISTLEBLOWING ............................................................................................................................................................................................... 41
ROLE OF EMPLOYEES IN FRAUD RISK MANAGEMENT ............................................................................................................................. 42
SOME SOLUTIONS FOR CASE SCENARIOS .................................................................................................................................................. 42
SEMINAR 5.2 - REVIEW & REVISION ..................................................................................................................................................................... 43
COSO PRINCIPLES: REVIEW & REVISION ...................................................................................................................................................... 43
KEY PLAYERS IN GOVERNANCE & MONITORING ........................................................................................................................................ 43
RISK GOVERNANCE FRAMEWORK EXAMPLE .............................................................................................................................................. 43
RISK GOVERNANCE ............................................................................................................................................................................................. 43
ENTERPRISE GOVERNANCE OBJECTIVES.................................................................................................................................................... 44
CORPORATE GOVERNANCE ATTRIBUTE ...................................................................................................................................................... 44
BENEFITS OF GOOD CORPORATE GOVERNANCE: .................................................................................................................................... 44
INCENTIVE GOVERNANCE ................................................................................................................................................................................. 44
WAYS TO CURB EXCESSIVE CEO/MANAGEMENT PAY.............................................................................................................................. 44
REVIEW: TYPES .................................................................................................................................................................................................... 45
REVIEW & REVISION ............................................................................................................................................................................................ 45
TUTORIAL POINTERS .......................................................................................................................................................................................... 45
SEMINAR 6.1 COMMUNICATION, REPORTING AND IT RISK MANAGEMENT ............................................................................................. 46
COSO PRINCIPLES: INFORMATION, COMMUNICATION & REPORTING ................................................................................................. 46
TYPES OF REPORTING TO THE BOARD......................................................................................................................................................... 46
BIG DATA - THE 4 VS............................................................................................................................................................................................ 46
PURPOSE OF BIG DATA ANALYTICS ............................................................................................................................................................... 46
APPLICATION OF BIG DATA ANALYTICS ........................................................................................................................................................ 46
PREDICTIVE ANALYTICS..................................................................................................................................................................................... 47
MACHINE LEARNING ............................................................................................................................................................................................ 48
LEVELS OF ANALYTICS ....................................................................................................................................................................................... 48
PITFALLS IN DATA ANALYTICS.......................................................................................................................................................................... 49
TAKEAWAYS: AUDIT ANALYTICS OPPORTUNITIES ..................................................................................................................................... 50
TAKEAWAYS: AUDIT ANALYTICS CHALLENGES .......................................................................................................................................... 50
IT GOVERNANCE: IT INFORMATION OBJECTIVES/CRITERIA .................................................................................................................... 51
WAYS TO STRENGTHEN IT GOVERNANCE ................................................................................................................................................... 51
RISK CONSIDERATIONS IN DETERMINING THE ADEQUACY OF IT CONTROLS .................................................................................. 52
GENERAL IT RISK MITIGATION STRATEGIES................................................................................................................................................ 52
POTENTIAL IT RISKS AND INTERNAL CONTROL ISSUES AND HOW IT CAN BE SOLVED ................................................................. 52
ILLUSTRATIVE USE OF EXTENDED AUDIT EVIDENCE ............................................................................................................................... 54
EXAMPLES INTERNAL CONTROL DEFICIENCIES AND ASSOCIATED IT RISKS ................................................................................... 54
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, SEMINAR 7.1 CATASTROPHIC RISK MANAGEMENT ........................................................................................................................................ 57
OVERVIEW .............................................................................................................................................................................................................. 57
CATASTROPHIC RISK MANAGEMENT ............................................................................................................................................................. 57
BUSINESS CONTINUITY MANAGEMENT (BCM)............................................................................................................................................. 57
BENEFITS AND DIFFICULTY OF IMPLEMENTING BCM ............................................................................................................................... 58
AREAS TO CONSIDER IN BCM PLAN ............................................................................................................................................................... 58
AREAS TO CONSIDER IN A CRISIS MANAGEMENT PLAN .......................................................................................................................... 59
MAJOR CRISIS TO PREPARE FOR ................................................................................................................................................................... 60
SEMINAR 7.2 - ERM CONCEPTS APPLICATION THROUGH HYDRO ONE CASE ........................................................................................ 61
1. What is Hydro One’s strategy?.......................................................................................................................................................................... 61
2. Putting yourself in the shoes of CEO Laura Formusa, what risks does Hydro One face? ........................................................................ 61
3. Discuss the key elements of Hydro One’s ERM process. What are its strengths and weaknesses? ...................................................... 62
4. What recommendations for change would you suggest to Hydro One’s ERM process? Justify .............................................................. 63
5. What refreshing key lessons on enterprise risk management do you take away from the Hydro One case? ........................................ 63
TAKEAWAYS- ATTRIBUTES OF A WELL DESIGNED ERM .......................................................................................................................... 64
CRITICAL SUCCESS FACTORS TO HYDRO ONE .......................................................................................................................................... 64
SEMINAR 8.2 - RISK MANAGEMENT OF AN AUDIT PRACTICE ....................................................................................................................... 66
EXAMPLES OF AUDIT FAILURE ......................................................................................................................................................................... 66
AUDIT ISSUES AND AREAS WITH HIGH RMM................................................................................................................................................ 67
REDUNDANCY PLANS ......................................................................................................................................................................................... 68
AUDIT QUALITY ..................................................................................................................................................................................................... 69
CONTROLS OVER AUDIT ENGAGEMENTS & AUDIT FIRM ......................................................................................................................... 69
MONEY LAUNDERING .......................................................................................................................................................................................... 69
SITUATIONS............................................................................................................................................................................................................ 71
SEMINAR 9.1 & 9.2 - AUDITING COMPLEX ISSUES ........................................................................................................................................... 72
AUDITING COMPLEX ACCOUNTING ESTIMATE ............................................................................................................................................ 72
AUDIT CONSIDERATIONS FOR PRODUCT WARRANTY PROVISION....................................................................................................... 72
SPECIFIC AUDIT PROCEDURES TO VERIFY REASONABLENESS OF PROVISION FOR PRODUCT WARRANTY ........................ 72
IMPAIRMENT ASSESSMENT............................................................................................................................................................................... 73
CHALLENGING THE ASSUMPTIONS USED IN IMPAIRMENT ASSESSMENT .......................................................................................... 74
AUDIT OF INTANGIBLE ASSETS........................................................................................................................................................................ 76
RMM RELATING TO INTERNALLY GENERATED INTANGIBLE ASSETS................................................................................................... 76
AUDIT PROCEDURES FOR INTANGIBLE ASSETS ........................................................................................................................................ 77
GENERAL AUDIT PROCEDURES....................................................................................................................................................................... 77
SPECIFIC RISK AND AUDIT PROCEDURES .................................................................................................................................................... 77
INFORMATION NEEDED TO VERIFY VALUE OF CUSTOMER DATABASE .............................................................................................. 78
AUDITING INVESTMENTS ................................................................................................................................................................................... 78
AUDITING FAIR VALUE ESTIMATES ................................................................................................................................................................. 79
AUDITING FINANCIAL INSTRUMENTS ............................................................................................................................................................. 81
AUDITING PROSPECTIVE FINANCIAL INFORMATION (FORECASTS)...................................................................................................... 82
AREAS TO CONSIDER BEFORE ACCEPTING ................................................................................................................................................ 82
STATEMENT OF FINANCIAL POSITION - AREAS TO SCRUTINIZE ........................................................................................................... 82
STATEMENT OF COMPREHENSIVE INCOME - AREAS TO SCRUTINIZE ................................................................................................ 82
AUDIT OF CASH FLOW PROJECTION .............................................................................................................................................................. 83
SEMINAR 10.1 & 10.2 - AUDIT OF REVENUE FRS 115 ...................................................................................................................................... 85
REVENUE RECOGNITION ISSUES & AUDIT PROCEDURES ...................................................................................................................... 85
BILL & HOLD ARRANGEMENTS ......................................................................................................................................................................... 89
AUDITING SALES WITH WARRANTY ................................................................................................................................................................ 90
AUDIT CONSTRUCTION CONTRACTS ............................................................................................................................................................. 91
AUDIT LEASES ....................................................................................................................................................................................................... 91
SEMINAR 11.1 & 11.2 - AUDIT OF GROUP FINANCIAL STATEMENTS........................................................................................................... 93
CLIENT ACCEPTANCE/CONTINUANCE CONSIDERATIONS ....................................................................................................................... 93
EXAMPLES OF ITEMS TO LOOK OUT FOR IN GROUP AUDITS ................................................................................................................. 94
DETERMINING SIGNIFICANT COMPONENTS AND GROUP MATERIALITY ............................................................................................. 95
DETERMINING CONTROL OVER THE REPORTED COMPONENT............................................................................................................. 96
CONSIDERATIONS & AUDIT PROCEDURES .................................................................................................................................................. 96
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Consolidated Exam Notes Updated Nanyang Technological
University
Table of Contents
SEMINAR 1.1 INTRODUCTION .................................................................................................................................................................................. 1
COSO (2017) VS ISO 31000 (2018) ...................................................................................................................................................................... 1
WHAT IS SYSTEM THINKING................................................................................................................................................................................ 1
CAUSAL LOOP DIAGRAM (CLD) .......................................................................................................................................................................... 1
APPLICATION OF SYSTEMS THINKING IN ERM .............................................................................................................................................. 1
SUMMARY OF ENTERPRISE RISK MANAGEMENT ......................................................................................................................................... 2
BENEFITS OF ERM.................................................................................................................................................................................................. 2
ERM COMPARED TO INTERNAL CONTROLS................................................................................................................................................... 3
SEMINAR 1.2 GOVERNANCE & CULTURE ............................................................................................................................................................. 4
COSO PRINCIPLE: GOVERNANCE & CULTURE .............................................................................................................................................. 4
FACTORS IMPEDING BOARD INDEPENDENCE............................................................................................................................................... 4
BUILDING A RISK-AWARE CULTURE ................................................................................................................................................................. 4
HARD VS SOFT CONTROLS ................................................................................................................................................................................. 5
THE SOFT SIDE OF CONTROLS: WHY CONTROLS FAIL .............................................................................................................................. 5
EY’S RISK CULTURE FRAMEWORK ................................................................................................................................................................... 5
SOLUTION - ACCESS EACH MECHANISM AND UNDERSTAND HOW THEY INFLUENCE BEHAVIOR................................................ 5
IMPORTANCE OF BOARD TO UNDERSTAND AND ASSESS CORPORATE CULTURE........................................................................... 6
CHALLENGES OF ASSESSING CORPORATE CULTURE ............................................................................................................................... 7
RISKS FACTORS USEFUL FOR INTERNAL AUDITOR TO EVALUATE CORPORATE CULTURE .......................................................... 8
CRITICAL SUCCESS FACTORS EXAMPLE...................................................................................................................................................... 10
SEMINAR 2.2 - STRATEGY & OBJECTIVE SETTING .......................................................................................................................................... 11
COSO PRINCIPLES: STRATEGY & OBJECTIVE SETTING ........................................................................................................................... 11
COSO ERM 2017 VS COSO ERM 2004 ............................................................................................................................................................. 11
EXAMPLE: APPLYING COSO .............................................................................................................................................................................. 11
VISION, MISSION AND STRATEGIC OBJECTIVES......................................................................................................................................... 11
WHY SET OBJECTIVES?...................................................................................................................................................................................... 11
CONSIDER EXTERNAL AND INTERNAL ENVIRONMENT AND STAKEHOLDERS .................................................................................. 12
SETTING TARGET AND TOLERANCE TO ALIGN WITH BUSINESS OBJECTIVES.................................................................................. 12
OLAM’S STRATEGIC OBJECTIVES ................................................................................................................................................................... 12
OLAM’S BALANCED SCORECARD (LINKING STRATEGIC OBJECTIVES TO OPERATIONAL OBJECTIVES) ................................... 13
RISK APPETITE ...................................................................................................................................................................................................... 13
WHY SET UPPER LIMIT FOR RISK TOLERANCE?......................................................................................................................................... 13
OPERATIONALIZING RISK APPETITE .............................................................................................................................................................. 14
MBZ CASE - ADOPTING A LOW COST STRATEGY ....................................................................................................................................... 14
OLAM’S STRATEGIC OBJECTIVES CASE STUDY ......................................................................................................................................... 15
ENABLERS TO ACHIEVE STRATEGIES ........................................................................................................................................................... 15
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,SEMINAR 3.1 - STRATEGIC RISK IDENTIFICATION ........................................................................................................................................... 16
COSO PRINCIPLES: PERFORMANCE .............................................................................................................................................................. 16
SWOT & PESTLE ANALYSIS ............................................................................................................................................................................... 16
SUPPLY CHAIN: EMERGING RISKS, MITIGATION STRATEGIES ............................................................................................................... 16
MAKING SUPPLY CHAIN MORE RESILIENT ................................................................................................................................................... 16
MANAGERS AND THEIR IMPACT ON STRATEGIC RISK MANAGEMENT ................................................................................................ 17
STRATEGIC RISK .................................................................................................................................................................................................. 17
LOBLAW CASE ....................................................................................................................................................................................................... 17
EXAMPLE OF ENTITY LEVEL BUSINESS MODEL (ELBM) ........................................................................................................................... 19
CHARACTERISTICS OF GROCERY CHAIN BUSINESS ................................................................................................................................ 19
AUDITOR: UNDERSTAND CLIENT’S DYNAMIC SYSTEM ............................................................................................................................. 19
SUSTAINABILITY.................................................................................................................................................................................................... 20
SEMINAR 3.2 - IDENTIFYING RISKS IN A BUSINESS PROCESS .................................................................................................................... 22
AREAS OF EMERGING AND CHANGING RISKS ............................................................................................................................................ 22
POSSIBLE RISKS ................................................................................................................................................................................................... 22
APPROACH TO IDENTIFY RISKS....................................................................................................................................................................... 22
HOW TO ANALYZE A BUSINESS PROCESS ................................................................................................................................................... 23
BOW TIE ANALYSIS .............................................................................................................................................................................................. 24
KEY RISK INDICATORS(KRI) AND KEY PERFORMANCE INDICATORS (KPI) ......................................................................................... 24
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, EXAMPLES OF RISKS AND KEY CORRESPONDING KRIs .......................................................................................................................... 24
EXAMPLES OF KEY PERFORMANCE INDICATORS (TAKEN FROM BALANCED SCORECARD) ........................................................ 25
IMPORTANCE OF USING LEADING INDICATORS ......................................................................................................................................... 26
BUSINESS PROCESS RISKS .............................................................................................................................................................................. 27
PROCESS ANALYSIS TEMPLATE ...................................................................................................................................................................... 28
SEMINAR 4.1 - PERFORMANCE 3: RISK ANALYSIS, EVALUATION & TREATMENT ................................................................................... 30
TYPES OF RISK (INTERNAL) .............................................................................................................................................................................. 30
ESTIMATING/ASSESSING RISK LIKELIHOOD AND IMPACT ON BOTH INHERENT AND RESIDUAL BASIS .................................... 31
ASSESSMENT TECHNIQUES - QUALITATIVE VS QUANTITATIVE............................................................................................................. 31
EXAMPLES OF RISK ASSESSMENT (QUANTITATIVE) ................................................................................................................................. 33
EXAMPLES OF RISK ASSESSMENT (QUALITATIVE) .................................................................................................................................... 33
INHERENT, RESIDUAL AND TARGET RISKS .................................................................................................................................................. 34
RISK RESPONSE (SHOULD HAVE A TIME FRAME) ...................................................................................................................................... 35
REASONS & EXAMPLES TO ASSESS AND DEVELOP RISK RESPONSES AT A PORTFOLIO LEVEL ............................................... 37
SEMINAR 4.2 - CONTROL ACTIVITIES AND ETHICAL RISK MANAGEMENT ................................................................................................ 38
IMPORTANCE OF ETHICS IN RISK MANAGEMENT ...................................................................................................................................... 38
WHY DOES SOUND RISK MANAGEMENT REQUIRE STRONG FOUNDATION IN ETHICS .................................................................. 38
KEY CHALLENGES OF ETHICAL RISK MANAGEMENT ................................................................................................................................ 39
ETHICAL REASONING .......................................................................................................................................................................................... 39
GUIDELINES ........................................................................................................................................................................................................... 40
ETHICAL RISK AND HOW TO MANAGE THEM ............................................................................................................................................... 40
WHISTLEBLOWING ............................................................................................................................................................................................... 41
ROLE OF EMPLOYEES IN FRAUD RISK MANAGEMENT ............................................................................................................................. 42
SOME SOLUTIONS FOR CASE SCENARIOS .................................................................................................................................................. 42
SEMINAR 5.2 - REVIEW & REVISION ..................................................................................................................................................................... 43
COSO PRINCIPLES: REVIEW & REVISION ...................................................................................................................................................... 43
KEY PLAYERS IN GOVERNANCE & MONITORING ........................................................................................................................................ 43
RISK GOVERNANCE FRAMEWORK EXAMPLE .............................................................................................................................................. 43
RISK GOVERNANCE ............................................................................................................................................................................................. 43
ENTERPRISE GOVERNANCE OBJECTIVES.................................................................................................................................................... 44
CORPORATE GOVERNANCE ATTRIBUTE ...................................................................................................................................................... 44
BENEFITS OF GOOD CORPORATE GOVERNANCE: .................................................................................................................................... 44
INCENTIVE GOVERNANCE ................................................................................................................................................................................. 44
WAYS TO CURB EXCESSIVE CEO/MANAGEMENT PAY.............................................................................................................................. 44
REVIEW: TYPES .................................................................................................................................................................................................... 45
REVIEW & REVISION ............................................................................................................................................................................................ 45
TUTORIAL POINTERS .......................................................................................................................................................................................... 45
SEMINAR 6.1 COMMUNICATION, REPORTING AND IT RISK MANAGEMENT ............................................................................................. 46
COSO PRINCIPLES: INFORMATION, COMMUNICATION & REPORTING ................................................................................................. 46
TYPES OF REPORTING TO THE BOARD......................................................................................................................................................... 46
BIG DATA - THE 4 VS............................................................................................................................................................................................ 46
PURPOSE OF BIG DATA ANALYTICS ............................................................................................................................................................... 46
APPLICATION OF BIG DATA ANALYTICS ........................................................................................................................................................ 46
PREDICTIVE ANALYTICS..................................................................................................................................................................................... 47
MACHINE LEARNING ............................................................................................................................................................................................ 48
LEVELS OF ANALYTICS ....................................................................................................................................................................................... 48
PITFALLS IN DATA ANALYTICS.......................................................................................................................................................................... 49
TAKEAWAYS: AUDIT ANALYTICS OPPORTUNITIES ..................................................................................................................................... 50
TAKEAWAYS: AUDIT ANALYTICS CHALLENGES .......................................................................................................................................... 50
IT GOVERNANCE: IT INFORMATION OBJECTIVES/CRITERIA .................................................................................................................... 51
WAYS TO STRENGTHEN IT GOVERNANCE ................................................................................................................................................... 51
RISK CONSIDERATIONS IN DETERMINING THE ADEQUACY OF IT CONTROLS .................................................................................. 52
GENERAL IT RISK MITIGATION STRATEGIES................................................................................................................................................ 52
POTENTIAL IT RISKS AND INTERNAL CONTROL ISSUES AND HOW IT CAN BE SOLVED ................................................................. 52
ILLUSTRATIVE USE OF EXTENDED AUDIT EVIDENCE ............................................................................................................................... 54
EXAMPLES INTERNAL CONTROL DEFICIENCIES AND ASSOCIATED IT RISKS ................................................................................... 54
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, SEMINAR 7.1 CATASTROPHIC RISK MANAGEMENT ........................................................................................................................................ 57
OVERVIEW .............................................................................................................................................................................................................. 57
CATASTROPHIC RISK MANAGEMENT ............................................................................................................................................................. 57
BUSINESS CONTINUITY MANAGEMENT (BCM)............................................................................................................................................. 57
BENEFITS AND DIFFICULTY OF IMPLEMENTING BCM ............................................................................................................................... 58
AREAS TO CONSIDER IN BCM PLAN ............................................................................................................................................................... 58
AREAS TO CONSIDER IN A CRISIS MANAGEMENT PLAN .......................................................................................................................... 59
MAJOR CRISIS TO PREPARE FOR ................................................................................................................................................................... 60
SEMINAR 7.2 - ERM CONCEPTS APPLICATION THROUGH HYDRO ONE CASE ........................................................................................ 61
1. What is Hydro One’s strategy?.......................................................................................................................................................................... 61
2. Putting yourself in the shoes of CEO Laura Formusa, what risks does Hydro One face? ........................................................................ 61
3. Discuss the key elements of Hydro One’s ERM process. What are its strengths and weaknesses? ...................................................... 62
4. What recommendations for change would you suggest to Hydro One’s ERM process? Justify .............................................................. 63
5. What refreshing key lessons on enterprise risk management do you take away from the Hydro One case? ........................................ 63
TAKEAWAYS- ATTRIBUTES OF A WELL DESIGNED ERM .......................................................................................................................... 64
CRITICAL SUCCESS FACTORS TO HYDRO ONE .......................................................................................................................................... 64
SEMINAR 8.2 - RISK MANAGEMENT OF AN AUDIT PRACTICE ....................................................................................................................... 66
EXAMPLES OF AUDIT FAILURE ......................................................................................................................................................................... 66
AUDIT ISSUES AND AREAS WITH HIGH RMM................................................................................................................................................ 67
REDUNDANCY PLANS ......................................................................................................................................................................................... 68
AUDIT QUALITY ..................................................................................................................................................................................................... 69
CONTROLS OVER AUDIT ENGAGEMENTS & AUDIT FIRM ......................................................................................................................... 69
MONEY LAUNDERING .......................................................................................................................................................................................... 69
SITUATIONS............................................................................................................................................................................................................ 71
SEMINAR 9.1 & 9.2 - AUDITING COMPLEX ISSUES ........................................................................................................................................... 72
AUDITING COMPLEX ACCOUNTING ESTIMATE ............................................................................................................................................ 72
AUDIT CONSIDERATIONS FOR PRODUCT WARRANTY PROVISION....................................................................................................... 72
SPECIFIC AUDIT PROCEDURES TO VERIFY REASONABLENESS OF PROVISION FOR PRODUCT WARRANTY ........................ 72
IMPAIRMENT ASSESSMENT............................................................................................................................................................................... 73
CHALLENGING THE ASSUMPTIONS USED IN IMPAIRMENT ASSESSMENT .......................................................................................... 74
AUDIT OF INTANGIBLE ASSETS........................................................................................................................................................................ 76
RMM RELATING TO INTERNALLY GENERATED INTANGIBLE ASSETS................................................................................................... 76
AUDIT PROCEDURES FOR INTANGIBLE ASSETS ........................................................................................................................................ 77
GENERAL AUDIT PROCEDURES....................................................................................................................................................................... 77
SPECIFIC RISK AND AUDIT PROCEDURES .................................................................................................................................................... 77
INFORMATION NEEDED TO VERIFY VALUE OF CUSTOMER DATABASE .............................................................................................. 78
AUDITING INVESTMENTS ................................................................................................................................................................................... 78
AUDITING FAIR VALUE ESTIMATES ................................................................................................................................................................. 79
AUDITING FINANCIAL INSTRUMENTS ............................................................................................................................................................. 81
AUDITING PROSPECTIVE FINANCIAL INFORMATION (FORECASTS)...................................................................................................... 82
AREAS TO CONSIDER BEFORE ACCEPTING ................................................................................................................................................ 82
STATEMENT OF FINANCIAL POSITION - AREAS TO SCRUTINIZE ........................................................................................................... 82
STATEMENT OF COMPREHENSIVE INCOME - AREAS TO SCRUTINIZE ................................................................................................ 82
AUDIT OF CASH FLOW PROJECTION .............................................................................................................................................................. 83
SEMINAR 10.1 & 10.2 - AUDIT OF REVENUE FRS 115 ...................................................................................................................................... 85
REVENUE RECOGNITION ISSUES & AUDIT PROCEDURES ...................................................................................................................... 85
BILL & HOLD ARRANGEMENTS ......................................................................................................................................................................... 89
AUDITING SALES WITH WARRANTY ................................................................................................................................................................ 90
AUDIT CONSTRUCTION CONTRACTS ............................................................................................................................................................. 91
AUDIT LEASES ....................................................................................................................................................................................................... 91
SEMINAR 11.1 & 11.2 - AUDIT OF GROUP FINANCIAL STATEMENTS........................................................................................................... 93
CLIENT ACCEPTANCE/CONTINUANCE CONSIDERATIONS ....................................................................................................................... 93
EXAMPLES OF ITEMS TO LOOK OUT FOR IN GROUP AUDITS ................................................................................................................. 94
DETERMINING SIGNIFICANT COMPONENTS AND GROUP MATERIALITY ............................................................................................. 95
DETERMINING CONTROL OVER THE REPORTED COMPONENT............................................................................................................. 96
CONSIDERATIONS & AUDIT PROCEDURES .................................................................................................................................................. 96
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