Financial Management and Accounting

Graduate School of Management and Technology

Announcements/News

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Compliance Audits – Opportunities, Not Obligations

Auditors can play a significant role in changing the attitudes of companies from viewing audits as burdensome compliance tasks to viewing audits as opportunities “to improve business processes through standardization and measurement” (Mehta, 2009). Auditors should emphasize the returns gained in the audit process, in terms of the risks and gaps that they identify during the audit process and the opportunities for process improvement. The return on investment of audits is calculated as:

Return on Investment = Cost of Unidentified Potential Risk – (Cost of Risk Identification + Cost of Risk Remediation + Cost of Performing Process Improvement Programs)

Focusing employee awareness on process standardization and continuous improvements reduces audit costs and maximizes ROI.

(Source: ISACA Journal, Volume I 2009)

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SEC Issues XBRL Reporting Deadline

On Dec. 17, 2008, the Securities and Exchange Commission approved final rules that require companies to submit financial statements in XBRL format with their SEC filings. The new rules will require companies to provide financial information using interactive data beginning with their quarterly June 2009 filings for the largest companies, and within three years for all public companies, according to the SEC.  For a summary of the new reporting rules, read the AICPA Release (XBRL).

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Monitoring Internal Control Systems

In August 2008, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) released an exposure draft on monitoring internal control systems in the United States. The draft includes guidance on the fundamentals of monitoring and an in-depth examinations of various types of information for effective internal controls. The Institute of Management Accountants (IMA) and the American Accounting Association (AAA) assisted with the project. 

A final version will be available soon at http://www.coso.org/.

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Continuous Auditing

The Information Systems Control Journal (Volume I, 2008) discusses the audit industry’s push to use technology in continuous audits that “monitor controls and transactions in real time”(p. 50).  The example cited is Siemens’ continuous audit management (CAM) program.  The software, provided by Approva, continuously audits for controls such as  segregation of duties, changes to the general ledger, and the purchase-to-pay and order-to-cash processes. 

The goal of continuous auditing of IT and business controls is to reduce audit costs and increase operating efficiency.  Other expected benefits include audits that are deeper and broader, but take less time; provide for more transparency and better communication between auditors and auditees; and where controls are optimized. 

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Take the Fraud IQ Test

While technology helps in the detection of fraud, accountants and financial managers require an intellectual understanding of what motivates fraud and how to look for signs of dishonesty and deception. 

Check your ‘fraud IQ’ by responding to these select questions from a test that recently appeared in the Journal of Accountancy (May 2007). 

• Which of the following assets are most often pilfered?
• Cash
• Accounts receivable
• Inventory
• Intellectual property
• __________________is the crediting of one account through the abstraction of money from another account.
• Skimming
• Lapping
• Rigging
• Padding
• Jones is a buyer for Smith.  He buys exclusively from Brown despite the fact that other suppliers are better and cheaper.  Jones has an undisclosed interest in Brown’s business.  This situation would be classified as _____________________.
• Embezzlement
• Larceny
• Conflict of interest
• Bribery

Click here for the answers:  Your Fraud IQ.

To take and read the entire Journal of Accountancy article, go to What is Your Fraud IQ? .

 

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