Summary guest lectures and papers (solutions from the cases included)

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)




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, 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



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, 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




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