An Internal Control Module System for the Auditor - Assignment Example

INTRODUCTION USER REQUIREMENTS The auditor wants an internal control module system that has the following user requirements: A small icon that when clicked will show variances between inventory levels from the beginning and the time of audit to determine if there are increases in inventory levels A user name and password is required for security purposes so that only authorized internal control persons can use such confidential data. The internal control module will give the auditor the choice of which branch to audit and after clicking the button, the internal auditor can press other icons to go deeper in his audit function as internal auditor; When the internal auditor clicks a certain icon the number of inventories and the value of the inventories will be displayed as well as the purchases or inflows of inventory and the issuance or out flow of inventory. When the auditor clicks another icon, the financial indicators, the macro economic indicators, the size and age and ownership of the inventory, the management fraud indicators and financial indicators will be displayed in order to help the internal auditor analyze better for a better recommendation to management. The internal control module will give a warning if the clients have exceeded their credit purchase limits in order to LESSEN the RISK of customers not being able to pay their due. The credit limit will constantly be increased or decreased based on the riskiness of a customer running away and not paying the company their debt. The internal auditor module also show the expiry date of the inventory and a warning will be issued to the internal auditor if the inventory is a few days before the expiry date so such items will be fast tracked and issued to the selling department to be sold before the product expires. Another icon in the module when clicked will show the sensitivity analysis of holding their inventory items. Another icon when clicked will show the decision tree analysis Another Icon that the internal auditor can click is the macro economic factor icon. Another Icon that the internal auditor will click is the industry indicator icon. Another icon that the Internal auditor must press is the management fraud indicator. SYSTEMS SPECIFICATION AUDITING SYSTEM There will be a small icon that when clicked will show variances between inventory levels from the beginning and the time of audit. This will be done to determine if the inventory levels were increased because of the expected future demand for the goods based on the marketing study done by the marketing department. Step one would be to enter user name and please enter your password. The choices are as follows : Main menu (a) open which branch? The choice here is for the auditor to choose which branch he or she wants to audit first. Step two. After pressing the name of the branch, the next question appears on the compute monitor screen is what do you want to do here and the following choices now appears. This auditing system supports the internal auditor in his daily activity of monitoring whether the incoming of goods from the suppliers have purchase requisition and approved by the department head concerned and the auditor also wants to know the number of issuances for internal audit report and the number of purchases that are. The auditor has to use the purchase orders module to determine whether the purchases have been approved by the higher ups in the organizations and there is a receiving report properly signed by the receiving person. Upon clicking the inventory system balances, what appears is as follows: Beginning balance ____, purchases_____, issuances, Ending balance. When the ending inventory balance is indicated on the computer screen this number must then be compared with the actual physical count to determine if there are discrepancies. If the actual count of inventories is placed alongside the is more than the book the this means that these items may not be been recorded. This may only be the tip of the iceberg meaning that there is a possibility that more inventory item issuances and receipts of goods from suppliers and other branches around the world were not recorded The physical count is placed on the blank line of the computer and an audit report is generated. The audit report shows the beginning balance, the purchases during the period and the issuances to the customers or branches who during the same accounting. Another area of the same auditing software will show the ending balance. Another column asks the internal auditor to input the actual physical count of the inventory. This is the most important part because the speed of accessing the computer will hasten the internal auditor’s job. Another choice that the internal auditor will be asked in this internal auditing module is credit transactions. When the auditor clicks this icon, the clients with payable accounts will appear on the screen as wells the number of days due of the receivables. The longer the number of months overdue, the higher will be the RISKINESS of the client not paying for the receivables amount on the issuances given by the company. The computer module the breaks down the total inventory amount according to the number and classifications of each item on sale Another icon in the internal control module will state whether the clients have been newly accepted as credit sales customers and the credit limit of each client. When the receivables amount is more than the credit limit, a notice or warning appears on the website screen. The system specification would go like this. When the internal auditor opens the website for internal auditing the following choices appear for the clients and member. The riskiness of the issuance procedure is lessened if the auditor frequently views the internal audit computer module for any violations of company policy of limiting the total amount of credit allowed to each credit customers. INTERNAL AUDITOR MODE. The intenal audit system also shows the details of the product movements, in terms of value and number of pieces alas to when they were received and when they were issued to customers or to the other branches of the company worldwide. There will be an icon that, when clicked, shows the expiring date of each item in the company. A warning message appears when the module is turned on to show that such items are now only 10 days before expiring date, like medicines. The internal audit module also shows an icon that when clicked, gives the benchmark or estimated number of items that must be sold in order to reach the minimum number of items that must be sold to reach the company Benchmark or sales quota. Another icon in the module when clicked will show the sensitivity analysis of holding their inventory items. Senstivity Analysis occurs when the users of the Internal Audit Theory where the particular risk factors that will affect the over all assessment of the business condition of each branch or geography. Another icon when clicked will show the decision tree analysis which will help in the risk analysis so that the internal auditor can recommend that drastic actions will be taken to lessen or even completely eliminate the risk factors. Another Icon that the internal auditor can click is the macro economic factor icon. This will show the relation of inflation, gross domestic product and other macro factors that will affect the holding on or increasing, or lastly, the decrease of holding onto inventory in the company. Another Icon that the internal auditor will click is the industry indicator icon. This will show the industry indicators like competitors’ market share & world market on the product that you company. The auditor will need these factors in his analysis of the such factors to the inventory issuances and tracking of inventory from the supplier to the company receiving area and finally to the issuance of the goods to the customers. Another icon that the Internal auditor must press is the management fraud indicator. This icon will show if some department heads are in collusion with employees to issue fraudulent financial reports to make it appear that the inventory end is less than they actually are so that sales will be higher than usual. Another icon that the internal auditor will press is the financial indicator icon. The financial indicator icon will show at a glance the financial statements like the balance sheet, the income statement and the statement of cash flows as well because this will help in a big way the internal auditor recommend to management that there are too many employees. The financial indicator will determine if the company made a good income for the current year as compared to the prior year. Another Icon that the internal auditor will press will be the size, age and ownership of the of the company portion. This will help the internal auditor recommend to management to increase the number of inventories to meet the needs of an ever growing customer base. CONCLUSION: The auditing function helps give assurance that the balance sheet, income statement and statement of cash flows are as correct or true as possible. The audit function will be helped much the internal auditors’ work because now the auditor has at his or her disposal a wide variety of tools for decision making. Such tools include the the financial indicators, the macro economic indicators, the size and age and ownership of the inventory, the management fraud indicators and financial indicators will be displayed in order to help the internal auditor analyze better for a better recommendation to management. The internal control module warns the internal auditor if the clients have exceeded their credit purchase limits in order to LESSEN the RISK of customers not being able to pay their due. The credit limit can be increased or decreased based on how risky of a customer running away and not paying the company their debt. The internal auditor module must shows the expiry date of the inventory and a warning will be issued to the internal auditor if the inventory is a few days before the expiry date so such items will be fast tracked and issued to the selling department to be sold before the product expires. The sensitivity analysis will help the auditor also in decision making. REFERENCES: Whittington et al., Principles of Auditing Irwin, London, 1995 Meigs, et al., Financial Accounting,McGrawHill, Londong,1992 Holmes et al., Auditing, Irwin, London, 1979 Read More