The Auditing Profession Answers | Assessment Answer
Answer:
Introduction
The computers and networks mainly provide the information needs of the auditors. In order to be effective it is important for an auditor to have knowledge about using the computer as an audit tool, have knowledge about the audit-automated system and understand the business process including the way it operates. The auditor can also use the technology for effective audit administration. The automated tools provided by the advancement of technology have helped the auditor to increase its productivity. In this essay, an attempt is made to understand the challenges faced by the contemporary auditor due to increased use of technology in the business operation (Homocianu and Airinei 2014).
Impact of technology on business
The technological advancement has revolutionized the way business conduct their operation. The advancement of technology has provided the small companies the same level playing field with the large companies. The businesses are effectively using technology to increase the productivity
of the employees by reducing the human labor and increasing importance is given in process automation. This reduces labor cost of business operation and the business can chose to increase its operation by expanding technology. The market in which a business operates has also expanded rapidly due to changing technology. The business has gained access to market all over the world with the help of internet. The advancement of internet has a far reaching on business as it has changed the way in which a business operates (Kotb et al. 2012).
Meaning of E commerce
Impact of online purchase and selling on business operation
The primary objective of the business is to earn profit and selling is the key function that helps the business to attain its primary objective. The online internet technology has provided the business wide market. A business is no longer limited to the locality of its operation but with the help of online selling it can sell goods in far away markets. The advancement of internet selling has therefore provided the business access to global market. This increased and uncertain demand has changed the operation of the business (Arel et al. 2012). Earlier the demand of the goods was easily estimated as the operation was localized but as the market has globalised the demand cannot be easily estimated. Therefore, the company has to maintain provision for increasing or decreasing production rapidly. The online selling has helped business to reduce cost and the price of the product vas various intermediaries in the process has been eliminated and the good is directly delivered to customer. The online selling has positively impacted and changed the business operation.
Risk of online purchasing and selling
• Not to conduct business and its operations in a way that is misleading;
• Should not provide misleading information regarding goods and services provided;
• Should not engage in coercing consumers at the time of purchase and sell of goods;
• Should engage in a contract that reasonably protects the rights of the interest;
• Goods and service supplied or provided should be in accordance with the description;
• Goods should be of marketable quality;
• The service provided should be of reasonable care and skill.
The Australian Consumer and competition Commission is responsible for administration of Trade practice Act (TPA). The ACC encourages all types of business that also includes online business to implement TPA as an important management tool because compliance of this act is considered as a good business practices (Ward 2016). Therefore, it can be said that compliance with the provisions of Trade practice Act is important for reducing the risk of online purchasing and selling.
The use of internet for purchasing and selling online has provided business with many advantages like savings in time, cost and effort. In addition to these benefits, the online operation has also put business in many risks (Padia and van Vuuren 2012). The risk in online purchase is given below:
• There is a risk of fraud in online purchase.
• There is a risk that goods supplied are not in accordance with the specification.
• In case of damaged goods, there is a risk that the online supplier may not replace the goods.
• There is a possibility that goods purchased may not be delivered within the specified time.
The risk associated with online selling of goods is given below:
• The customer may not pay for the goods or may delay in making payments.
• The customer may return the good that will increase the operating cost of the company.
• If the goods is damaged or lost in transit then the company will have to replace the good. It will increase its operation cost and the company will have to face loss of reputation.
Effect of risk on financial statement
The will full misrepresentation of facts and figure related to finance and operation of business is referred to as fraud. If the misrepresentation of the financial data is due to mistake then it is referred to as misstatement (Homocianu and Airinei 2014). The misstatement and fraud both affect the true and fair representation of financial statement. There is a possibility that online purchase and selling will led to misstatement of financial information the instances are given below:
• The business might purchase goods that are not up to the standard or the goods may be of such a poor quality that it cannot be used in operation. As the online supplier is not willing to return the goods, so these are included in the stock. This will lead to incorrect figures of inventory that in turn will affect the profit.
• There are many online fraud suppliers that act as a seller but are really scams. They agree to provide goods at the best price and usually take part payment for supplying the goods. The goods are never supplied thus creating loss of money and time to the company. The purchasing department in order to hide its inefficiency and lack of judgment does not show these expenses but are accounted in differently.
• The online delivery of goods sometimes takes times that are unreasonable or unplanned. This may cause operational inefficiencies or even shutdown of production. Therefore, to mitigate this business could purchase few goods on emergency from local suppliers at higher price so that production could be continued. In order to hide this inefficiency or extra money paid for emergency purchase the management could arrange with local supplier. The local supplier agrees to supply goods at high price in times of emergency and when the company from the online suppliers receives goods then units purchased from local suppliers are sent to local suppliers and the additional expenses are shown as incidental expenses (Troshani and Rao 2014).
• The goods sold on line that are returned by customer are removed from sales and are included in stock.
• The goods sold online to customers that are not paying and are not willing to pay are not written off as bad debt but are still included in the debtors.
Identification of fraud and misstatement by the Auditor
The auditor can identify low quality goods in the stock through physical verification of stock in the store. Further the slow moving or non-moving stock can also identified if the auditor advices the business separate register for such stocks.
In order to purchase goods generally an advance is required to be paid to the suppliers before the goods are delivered. In case of online frauds this advance moneys are sometime shown as expenses in the accounts. This can be easily identified if the auditor uses the process of vouching. In the vouching process the auditor, check the authenticity of the expenses by crosschecking the voucher and the bill.
If the goods are purchased from local higher rates but are shown as original purchase. The auditor can identify this by cross checking the store register and production register with the invoices raised by the supplier and the recorded maintained by the gatekeeper. If only the purchasing department conducts the fraud then it can be easily identified. Further vouching process can also be applied for checking the expenses.
The debtors that are not paying can be verified by the debtor-ageing schedule. The goods returned that are included in stock can be identified by checking the store register and also physical verification of goods.
Conclusion
Reference
Bentley, K.A., Omer, T.C. and Sharp, N.Y., 2013. Business strategy, financial reporting irregularities, and audit effort. Contemporary Accounting Research, vol. 30, no. 2, pp.780-817.
Healy, P.M. and Palepu, K.G., 2012. Business Analysis Valuation: Using Financial Statements. Cengage Learning.
Homocianu, D. and Airinei, D., 2014. Business Intelligence facilities with applications in audit and financial reporting. Financial Audit (Audit Financiar), ISSN, pp.1583-5812.
Kotb, A., Roberts, C. and Sian, S., 2012. E-business audit: Advisory jurisdiction or occupational invasion?. Critical Perspectives on Accounting, Vol. 23, no.6, pp.468-482.
Mgbame, C.O., Eragbhe, E. and Osazuwa, N.P., 2012. Audit partner tenure and audit quality: An empirical analysis. European Journal of Business and Management, vol. 4, no. 7, pp.154-162.
Mullainathan, S., Noeth, M. and Schoar, A., 2012. The market for financial advice: An audit study (No. w17929). National Bureau of Economic Research.
Padia, N. and van Vuuren, M.J., 2012. Performance auditing: Development of an audit model to evaluate efficiency, effectiveness and economy of the performance of a business. African Journal of Business Management, vol. 6, no. 39, p.10417.
Troshani, I. and Rao, S., 2015. Enabling e-business competitive advantage: Perspectives from the Australian financial services industry. International Journal of business and Information, 2(1).
Ward, P.C., 2016. Federal Trade Commission: Law, Practice and Procedure. Law Journal Press.
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