Computershare Limited Company - Case Study Example

Student Name: Tutor: Title: Computershare Limited Company Course: Executive summary Computershare Limited is a global company based in Australia that provides consultancy services in technology and capital market industry. This report provides an overview of the company financial strength, industry and evaluates the audit practices. Computershare operates in a very competitive environment that requires time to time updates to keep up with emerging trends in the market. The analysis has discussed the high risk and low risk areas within the company and how fraud can be minimized. Regulatory and operational risks exist since the company is involved in many transactions in different places in various countries. Consolidation of accounts presents a challenge that can be undermined by employees with an intention of committing a crime. The fraud triangle and fraud scales have been discussed in detail in this report. The report concludes by providing a broad audit strategy that has to be followed in the company practices. The cash flows have been identified as high risk areas represented in the final statements while the balance sheet is the low risk area in the final statements. The audit strategy encourages training and thorough preparation to drive the culture of integrity and honesty in the company. Whistleblowing has been encouraged as reiterated in the company whistleblower policy. Table of Contents Executive summary 2 Table of Contents 3 Company description 4 Conclusions and Audit Strategy 10 References 13 Company description Computershare Limited is a renowned company in the provision of consultancy services in technology and capital market industry. The company was founded in 1978 in Melbourne and it has extended its operations in Australian and global markets. The company was listed on Australian Security Exchange in the year 1994 when it had 6M shareholders and about only 50 staff members. The company now has over 125M customers with about 16,000 staff in major financial markets. The market cap runs in billions of dollars from a market cap of AUD $36M in 1994. The company has witnessed a breakthrough in regulatory transformation with regards to improving investor servicing standards and best practices. The company has spread to over twenty countries globally and it is committed to open market structures as well as service excellence. The company has a rich history in consultancy services. Computershare can be described as a stock transfer company situated in Australia and provides stock transfers, corporate trust together with employee share plan services in many countries such as the United Kingdom, the USA, Asia, New Zealand, South Africa, Denmark, Germany, and Hong Kong. The company deals in stock registration and provides technology services concerning investor services to stock exchanges, shareholders, and employee share plan management. The company is also engaged in deposit service. The investor services provided by the company entails, register maintenance, company meeting’s logistics, payments and online services. The company is further involved in plan services like management as well as administration of share and option plans for the employees. Communication services provided by Computershare Limited include laser imaging, intelligent mailing; scanning and communication delivery services. Business services include bankruptcy administration, corporate trust, voucher administration, deposit protection and utility office services. The company provides relationship management services of stakeholders like investor communication, management of information services and investor analysis. The financial strength of the company is impressive. The company revenue has been growing over time and receipts from customers have increased. The current assets of the company increased from $1.2Billion to 1.3Billion in 2016. The non-current assets increased from 2.5Billion to 2.6Billion in 2016. The current liabilities also increased from 723Million to 796Million in 2016. The non-current liabilities also increased from 1.9Billion in 2016 to 2.07Billion in 2016. Total equity increased by 68 Million. The company is at growth stage in the life cycle and competes well with its peers in the industry. Legal and regulatory concerns are important in the technology management industry due to ownership rights and handling information on behalf of clients. Confidentiality is paramount. The technology industry is very competitive and emerging trends are the norm. Computershare Limited is committed to ensuring high standards of corporate governance are maintained in the conduct and management of the business. The corporate governance statement spells out the detail plan of the main corporate governance practices at Computershare Limited. Analysis The Board is primary responsible for making sure that risk management practices at Computershare Ltd are adequate to mitigate risks present in the business effectively and efficiently. The responsibility of the board is delegated to the Risk and Audit Committee. The company has a clear approach to oversight as well as management of risk using three lines of defense model. The first line of defense involves the management that has the responsibility of risk management as well as control activities. The risk function makes up the second line of defense. The risk function is in charge of setting and implementing the risk framework together with support tools as well as methodologies and giving advisory support to the leadership or management. The internal audit functions makes up the third line of defense. It offers an objective and independent assurance function with the responsibility of making sure the policies, framework, and controls set up to mitigate key risks are effectively executed by the management (Lou & Wang, 2011). Internal audit performs regular systematic monitoring of the control activities and then reports the outcome to the senior managers of the business unit and the Risk and Audit Committee. The fraud process can be presented using a triangle known as the fraud triangle. 1. The Internal Audit and Risk and Audit Committee are the two functions that can be compromised for risk to take place within Computershare Limited. The Risk and Audit Committee oversees the work of Internal Audit control as well as the External audit. If the Committee is not keen, any errors committed by other functions will go unnoticed. The Risk and Audit Committee offers help to the Board of Directors in accomplishing its oversight and corporate responsibilities with regard to the company’s internal control structure, financial reporting; framework of risk management together with external and internal audit functions even approval of operating charters of the functions. The Committee has to maintain open and free communication between the external auditors, the committee, internal auditors as well as the leadership or management of the company. The Committee has the power of investigating matters brought to its attention through accessing all records, books, facilities and personnel of the company and has power to seek the service of independent counsel and other advisers appropriately. The first part of the fraud triangle is pressure. This is the primary motivator of crime. An individual can have a financial problem or need that cannot handle using legitimate needs hence he considers using illegal acts as a means of solving the problem. The financial problem can be professional or personal. Examples of pressures faced by an individual include peer pressure, living beyond means, personal financial loses; substance abuse or addictions, unexpected financial needs, personal debts or high bills, pressure to sustain investor confidence or productivity targets at work (Kassem & Higson, 2012). The second part of the fraud triangle is perceived opportunity. This represents the method through which the crime can be carried out. An individual has to see a way of committing the crime using his or her position of trust to solve a financial need with minimal perceived risk of being found out. The non-sharable financial problem precipitates the motive for crime being committed but the employee has to believe that he has a chance of committing the crime without being found out. Perceived opportunity can include things like poor internal controls, poor supervision, poor training, ineffective anti-fraud policies, programs and procedures, absence of prosecution of other perpetrators, and weak ethical culture. An individual has to see a means of abusing his position of trust accompanied by low perceived risk of being found out (Norman, Rose & Rose, 2010). The third part of the fraud triangle is rationalization. The criminals have to justify their acts of crime to themselves that make it appear acceptable. This is referred to as rationalization. Rationalization happens before the act of crime itself. People who are involved in fraud rationalize their behaviour in various ways. Fraud scales’ elements comprise of motives, capabilities, conditions and fulfillment. All the elements are closely related to internal control system. Motive is an element of fraud scales that determines whether an employee has the tendency to behave unfairly and the reason behind it. The motive is usually related to greed and circumstance within one’s life like financial needs, additions, gambling, and bad credit taken (Dorminey, Fleming, Kranacher & Riley, 2012). Motive is an incentive reason and the force behind fraud. Another element of fraud scales is conditions that enhance their risk. Conditions refer to circumstances through which fraud happens. Companies do operate in an ever-changing environment where there are always new conditions to commit frauds. The conditions are propelled when the internal and external environment of a particular company is unstable for some give period of time. The third element of fraud scales is possibilities which refer to an option given to an employee who hopes to commit crime. The positions of the person in the company and the existing internal controls determine the possibilities of engaging in fraud (Johnson et al, 2012). Effective internal controls lead to minimal chances of committing a fraud. The other element of fraud scales is realization. This refers to the personal characteristics of the employees like integrity and honesty that allow objective assessment of whether he is willing to commit fraud or not. Certain personal characteristics will push employees to be willing to engage in fraud or commit errors. The fraud process depends on the fraud scales, fraudsters, conditions, and other things. Amortization of intangible assets presents an audit risk since the costs of the assets have to be determined from the book value from the time of acquisition. Accounting estimates that comprise of fair value present an audit risk that has to be watched carefully. Risks of overstatement in the accounting books like the purchases journal has to be verified though checking the accompanying supplier invoice. Close supervision will ensure that correct entries are made in the accounting books (Arens, Elder & Beasley, 2012). Transfer of records from the accounting books to final accounts presents a risk that can be detected through imbalances but accountants can doctor the information to balance. Verification the original books of accounts is important. Operating activities poses the high risk since there are many transactions involving flow of money in and out of the company. Payments to employees and suppliers as well as receipt from customers increased from the previous year. Any error of commission in overstatement of payment or understatement of receipts can happen in the original books of accounts or transfer to the final accounts. The cash flow statement is an area that represents detection high risk since there is no balancing of accounts and misrepresentation can easily happen. Cash at hand increased $526M in 2015 to $604M in 2016. The clash flow statement is made up of cash from operating activities, cash from investing activities and cash from financing activities. Greater scrutiny is needed in this area to make sure that entries have been made correctly and promptly transferred to final accounts. Operational risk is high since the company is charge of managing valuable client data. Many external and internal factors affect the operations of the company. Moreover, there are many entities or units within the company that results in consolidated accounts during financial reporting (Hayes, Wallage & Gortemaker, 2014). Continuous testing is needed to ensure that correct data entry is made and true representation of transaction is recorded. The company is engaged in many transactions that have to be processed correctly to ensure risk is minimized. Regular substantive procedures have to be carried to ensure the operation risk is detected. Conclusions and Audit Strategy Fraud happens when there is a weakness in the financial system of the company. It is important to seal all look holes that can lead to opportunities or possibilities of fraud. Conditions existing within the company act as a motivation of engaging in fraud. When the detection risk is low then the auditor is compelled to use more costly and more effective procedures. Where the evaluated detection risk is high, the auditor can use procedures that are less costly and less effective. The timing of any substantive procedures relies on the degree of detection risk. In case the detection risk is low, the substantive procedures with regard to account balances have to be carried at or near the balance. Where the detection risk is high, then certain procedures can be carried out a few months before the end of the financial year. The internal structure of control is important in detection of any risk (Trompeter et al, 2012). Where the degree of detection risk is low then more evidence is required. The operational transaction represents the high risk areas in the final accounts while statement of assets and assets and liabilities are low risk areas. The high risk areas are reflected in the cash flow statements while the low risk areas are reflected in the balance sheet. Computershare Limited is a huge company with many accounts that are consolidated at the end of the financial year. The audit strategy is ensuring the individual units within the company represent figures correctly and keen supervision to ensure there is no misrepresentation. Transaction processes are many since the company deals in data management and the investor’s trust in vested in how well they get the correct information and value for money from the company. The Internal Audit Committee has to interrogate information that raises concerns and ask for explanation where there are discrepancies. The financial system has to be tested for any weaknesses and fixed to avoid conditions and motivate fraud to happen. The audit strategy will involve proper training of employees on the importance of integrity and honesty as custodians of important information and assets of the company. The company has to reward whistleblowers and promote honest and hardworking members. Fraud involves several people and takes advantage of existing conditions in the company. If the employees understand their role in ensuring transparency and honesty is propagated, then the chance of engaging in fraud is minimized. Use of credible external auditors is important for the company since they can whistle blow where there is a mistake is a scandal offing (Brazel, Carpenter & Jenkins, 2010). Whistleblowing is an approved policy by the company and it has to be enforced to ensure that whistleblowers are not victimized. Regulatory risk is imminent since the company operates from different countries under different regimes. The company is subjected to regulatory requirements in various countries across the globe. Complying with regulatory requirements is crucial in meeting the legal obligations of the company. The transactions have to factor in all regulatory requirements to avoid penalties or misconceptions. Substantive procedures will be designed at the operational level to ensure that proper records are made and transferred to the final accounts. Auditing planning is important in making the system foolproof (Vona, 2012). Planning has to commence with thorough training and preparation. The Employees at Computershare Limited have to learn by heart the corporate culture of the company that promotes honesty and integrity. Employees have to understand their role in keeping with the corporate culture of the company that ensures investor’s trust is upheld. The Risk and Audit Committee has to be at the forefront to come up development plans of improving foolproof reporting. The Internal Audit is important in detecting any mistakes and misrepresentation at an early stage and report to the Committee. The transition from one financial year to another needs correct transfer of balances to the final accounts. Understanding accounting principles used in different regimes is important to avoid any misrepresentation of facts that can be misleading. The internal audit function has to be autonomous and audit all areas to ensure are compliant with set regulatory and accounting standards. References Arens, A.A., Elder, R.J. and Beasley, M.S., 2012. Auditing and assurance services: an integrated approach, Prentice Hall. Brazel, J.F., Carpenter, T.D. and Jenkins, J.G., 2010. Auditors' use of brainstorming in the consideration of fraud: Reports from the field, The Accounting Review, 85(4), pp.1273-1301. Dorminey, J., Fleming, A.S., Kranacher, M.J. and Riley Jr, R.A., 2012. The evolution of fraud theory, Issues in Accounting Education, 27(2), pp.555-579. Hayes, R., Wallage, P. and Gortemaker, H., 2014. Principles of auditing: an introduction to international standards on auditing, Pearson Higher Ed. Johnson, E.N., Kuhn Jr, J.R., Apostolou, B.A. and Hassell, J.M., 2012. Auditor perceptions of client narcissism as a fraud attitude risk factor, Auditing: A Journal of Practice & Theory, 32(1), pp.203-219. Kassem, R. and Higson, A., 2012. The new fraud triangle model, Journal of Emerging Trends in Economics and Management Sciences, 3(3), p.191. Lou, Y.I. and Wang, M.L., 2011. Fraud risk factor of the fraud triangle assessing the likelihood of fraudulent financial reporting. Journal of Business & Economics Research (JBER), 7(2). Norman, C.S., Rose, A.M. and Rose, J.M., 2010. Internal audit reporting lines, fraud risk decomposition, and assessments of fraud risk, Accounting, Organizations and Society, 35(5), pp.546-557. Trompeter, G.M., Carpenter, T.D., Desai, N., Jones, K.L. and Riley Jr, R.A., 2012. A synthesis of fraud-related research, Auditing: A Journal of Practice & Theory, 32(sp1), pp. 287-321. Vona, L.W., 2012. Fraud risk assessment: Building a fraud audit program, John Wiley & Sons. Read More