A list of materials those need to be re-evaluated

I would like to inform that we have received a list of material that need to re-evaluated. Among forty eight re-evaluated material we have already released or rejected twenty material. The rest of the material cannot be released or rejected for different reasons such as material is not available in MIS, material was not available during re-evaluated month, material was unusable column in MIS and material not found practically etc.

For more information please read the QC comments in the attach file.

Thanks to Warehouse for this list and we will take immediate step to minimize the problem.

Enclosed pls. find herewith the list of items which are need to re-evaluate. Therefore, you are requested to take measures.


Please confirm the Packaging material for MDR as attached! Packing Material list for MDR is attached herewith. Please prepare MDR accordingly so that we can complete the process by Dec’13 end! Signed copy and related Document is forwarded to you.


Request to please provide your sign off on Cost sheet Report, according "Gross margin Report"changes will be done.

What are the Safeguards against Audit Threats?

Safeguards which may eliminate or diminish threats to members fall into three categories:

1. safeguards formed by the profession, regulation or legislation
2. safeguards in the work atmosphere
3. Safeguards formed by the individual.

Safeguards formed by the profession, regulation or legislation include:

• academic, training and experience requirements for entry into the profession
• continuing professional development requirements
• corporate governance regulations
• professionals standards (such as ISAs)
• professional or regulatory monitoring and disciplinary procedures
• external review by a legally empowered third party of the reports or information produced by a member.

Safeguards in the work atmosphere include:

• the employer’s own systems of monitoring and ethics and conduct programmes
• recruitment procedures, ensuring that only high-caliber, proficient staff are recruited
• right disciplinary processes
• strong internal controls
• leadership that pressures the role of ethical behavior and which expects employees to behave ethically
• policies to put into operation and monitor the quality of employee performance, engagements
• documented guiding principles regarding the identification of threats to compliance with the fundamental principles, the appraisal of those threats and the implementation of right safeguards
• communication of such policies and procedures and schooling on them
• the use of different partners and teams for the provision of non-assurance services to assurance clients
• policies and procedures to refrain individuals who are not members of an engagement team from improperly influencing the outcome of the engagement
• policies and procedures to give employees the power to report ethical issues to senior staff at the employing firm, without fear of retribution from those about whom they are making the report
• sharing ethical issues with the client
• disclosing to the client the nature of the services given and the fees charged
• Consultation with another appropriate professional accountant.

Safeguards created by the individual include:

• complying with continuing professional improvement requirements
• keeping records of contentious issues and approach to decision-making

Main risks in marketing operations

Marketing activities differ widely between different types of business. Some entities rely heavily on direct selling by sales representatives. Others rely more heavily on advertising. All entities should be trying to find out as much information as they can about what potential customers are buying, and what they would like to buy. However, marketing is much more than just selling and advertising and obtaining market research information. It is useful to think of marketing activities in terms of the ‘four Ps’.

The main risks in marketing operations are as follows:

• Market research is inadequate, and the entity fails to obtain enough information about what its customers want and what its competitors are doing.

• Marketing activities are ineffective because the four Ps of marketing are not planned in a coordinated way.

• Too much marketing spending achieves too few positive results.

• Marketing initiatives are not properly coordinated with other operations of the entity. For example, there is a risk that marketing campaigns to sell a particular product may fail because there is insufficient production capacity and inventory to meet the anticipated increase in demand.

• In some cases, there may be the risk of adverse publicity, which could affect the reputation of the company and customer demand for its products.

How to manage procurement risks?

Various controls can be applied to manage these risks:

• The entity might establish an authorised list of suppliers, and goods and services can be purchased only from suppliers on the list.

There may be exceptions to the policy guidelines. For example, a company policy may be that a supplier must be on the authorised list if more than one purchase order is ever placed with the supplier, but for one-off purchases, a supplier does not need to be on the list.

• There should be procedures for the requisition of goods and services, and procedures for the authorization and approval of purchase orders. For example, requisitions to purchase store items may be generated by the store department’s inventory control system, and the authorisation for the purchase and the placing of the purchase order should be made by individuals at a suitable level of seniority, depending on the size and value of the order.

• There should be established policies and procedures in the buying department for negotiating favorable prices with suppliers.

• For very large purchase contracts, it may be a policy requirement that a system of tendering should be used, and more than one supplier should be asked to tender for the contract.

• Supplier performance should be monitored. Have they delivered goods on time and to the specified quality?

• The payments system should be subject to suitable controls.

• There should be a control reporting system that reports to management on supplier performance and any breach of purchasing policy guidelines and procedures.

What are the main risks may be involved with procurement?

In many organizations, procurement is the specific responsibility of a buying department or purchasing department. Organizing this activity in a centralized department should help to ensure that spending is managed and controlled.

The main risks with procurement are as follows:

1. The entity may buy items that it does not really need or cannot afford.
2. It may pay prices that are higher than necessary. Items might be available at a lower price.
3.  Some payments to suppliers may be fraudulent; for example, some suppliers may receive payments for items they have not supplied.
4.  The entity might pay suppliers the wrong amount.
5.  The entity may take too long to pay (longer than the time agreed in the terms of credit with the supplier). 
6. This could have an adverse effect on the business reputation of the entity.

Approaches to audit risk management

Approaches to risk management that an internal auditor may recommend to management include the following:

• Acceptance. Risk acceptance means accepting the risk and doing nothing to reduce the possibility that an adverse event will happen and doing nothing to limit the consequences if an adverse event does occur. This approach is normally only acceptable if the risk is insignificant.

• Reduction. Risk reduction involves taking measures to reduce the probability that an adverse event will happen, or reducing the consequences of an adverse event. Measures to reduce risk may involve instituting appropriate controls to minimize the risks to which the entity is exposed. Most internal controls aredesigned as risk reduction measures.

• Avoidance. Risk avoidance means avoiding transactions or situations that would create an exposure to a risk. For companies, it is normally impossible to avoid risks entirely without withdrawing from a business operation entirely.

• Transfer. Risk transfer means transferring the risk to a third party, often in return for a payment. The most commonly-used example of risk transfer is probably the use of insurance. With insurance, risks are transferred to an insurance company in exchange for the payment of a premium.

Kinds of Risks that are considered by internal auditors

It is helpful to analyze the risks that are considered by internal auditors into three main categories. These are:

• Operational risk. These are the risks that the operating activities of an entity may be disrupted, either intentionally or inadvertently and in error. Employees may formulate mistakes, and do something wrong or forget to do something. Machines may break down. There may be reduced security measures, poor supervision, weak management or an ineffective organization structure. Operational risk refers to anything that might go wrong with operational activities.

• Financial risk. These are the risks of what may happen if there are changes in the financial environment, such as interest rates, taxation law or exchange rates. Financial risk also includes credit risk, which is the risk of non-payment or late payment by customers.

• Compliance risk. These are risks that the entity may fail to comply with relevant rules and regulations, resulting in penalties being imposed by regulatory authorities or fines being paid to aggrieved parties. Examples of compliance risk vary according to the nature of a company’s activities: they may include the risks of non-compliance with health and safety law, anti-pollution law, employment law, and so on.

How to protect the independence of the internal auditors

Various actions can be taken to try to shield the independence of the internal auditors

• Reporting lines. The head of internal audit may report to the audit committee and not to the finance director or chief accountant. 
• Deciding the scope of internal audit work. The scope of work carried out by the internal auditors should not be decided by the finance director or line management responsible for the operations that may be subjected to audit. This is to keep away from the risk that the internal auditors might be assigned to investigations of non-contentious areas of the business. The scope of internal audit work should be decided by the chief internal auditor or by the audit committee.

• Rotation of internal audit staff. Internal auditors should not be allowed to become too familiar with the operations that they audit or the management responsible for them. To reduce the familiarity threat, internal auditors should be rotated on a regular basis, say every three to five years, and at the end of this time they should be assigned to other jobs within the entity.

• Appointment of the chief internal auditor. The chief internal auditor should not be appointed by a senior executive who may have some self-interest in wishing to select a ‘yes man’ who will not ‘cause trouble’. Instead, the audit committee should be responsible for appointing a new chief internal auditor, subject perhaps to approval by the board of directors.

• Designing internal controls. The internal auditors should not be responsible for the design of internal controls within the entity. If they did, they would be required to audit their own work, which is unacceptable. Senior management in accounting and finance or line management should have responsibility for the design and implementation of internal controls, taking advice where appropriate from the external auditors when control weaknesses are identified during the external audit.

Conflicts of interest between competing clients

An firm might act for two clients that are in direct competition with each other. The firm has a professional duty of confidentiality, and so will not disclose confidential information about one client company to its competitor. Again, the test is whether a “reasonable and informed third party” would consider the conflict of interest as likely to affect the judgement of the firm.

The approach that the audit firm should take will be a matter of judgement and should reflect the circumstances of the case. Where the acceptance or continuance of an engagement would materially prejudice the interests of any client, the appointment should not be accepted or continued.

In other cases, possible safeguards might include the following:
Giving careful consideration to whether it is appropriate to accept an assurance engagement from a new client that is in direct competition with an existing client, it may be appropriate to decline the offer from the potential new client.

• Careful management of the clients, for example by ensuring that different members of staff are used on the two engagements.
• Full and frank disclosure to the clients of the potential conflict, together with suitable steps by the firm to manage the potential conflict of interest.
• Procedures to prevent access to information (physical separation of the teams and secure data filing). Such an approach is known as creating “Chinese walls”.
• Establishing clear guidelines on security and confidentiality and the use of confidentiality agreements.
• Regular review of safeguards in place.
• Advising one or both clients to seek additional independent advice.

Ethics regarding Conflicts of interest

Conflicts between members and clients
Professional members or firms should not accept or continue an engagement where there is a conflict of interest between the member or firm and its client. The test is whether a “reasonable and informed third party” would consider the conflict of interest as likely to affect the judgement of the member or the firm.

Examples of this might be:

• when members compete directly with a client
• the receipt of commission from a third party for the introduction of a client (for example, an audit firm may be paid a commission by another entity, such as a firm of brokers, for introducing the entity to its client companies).

Safeguards against a conflict of interest between members and clients might include:

• disclosure of the conflict/commission to the client, and
• obtaining the informed consent of the client.

 

When Intimidation threats may arise?

Intimidation threats occur when a member’s conduct is influenced by fear or threats (for example, when he encounters an aggressive and dominating individual at a client or at his employer). 

 

 

Circumstances which may give rise to intimidation threats for members include:

• threat of dismissal or replacement of the member, or a close family member, over a disagreement about the application of an accounting principle or the way in which information is to be reported
• a dominant personality attempting to influence the member’s decisions
• being threatened with litigation
• being pressured to inappropriately reduce the amount of work performed in order to reduce fees.

When Familiarity threats may arise?

Familiarity threats occur when, because of a close relationship, members become too sympathetic to the interests of others. 

 

Circumstances which may give rise to familiarity threats for members include:
 

• where a member in a position to influence financial or non-financial reporting or business decisions has an immediate family member who could benefit from those decisions
• long association with business contacts influencing business decisions 
• acceptance of gifts or preferential treatment, unless the value is clearly insignificant
• over-familiarity with the management of the organisation such that professional judgment could be compromised
• a former partner of the firm being a director or officer of the client or an employee being in a position to exert direct and significant influence over the subject matter of the engagement.

Familiarity threat occurs when a senior member of the audit team has worked on the same audit for several years. There is a risk that the individual will become too familiar with the audit client and its management, and may then be unable to take an objective view and make objective decisions concerning the audit.

When Advocacy threats may arise?

Advocacy threats occur when members promote a position or opinion on behalf of a client to the point that subsequent objectivity may be compromised. Although it is natural for members to support their client’s or employer’s position this could mean that they adopt a position so closely aligned with that of their client or their employer that there is an actual or perceived threat to the fundamental principle of objectivity.
 

Circumstances which may give rise to advocacy threats for members include:

1. commenting publicly on future events
2. situations where information is incomplete or where the argument being supported is against the law
3. promoting shares in a listed company which is also an audit client
4. acting as an advocate for an assurance client in litigation or dispute with third parties.

For example a client entity may ask its audit firm to represent it in a legal dispute with the tax authorities about the amount of tax payable. The audit firm should refuse to act in this way, because by acting as advocate for the client in this way, its objectivity would come under threat.

When Self-review threats may arise?

Self-review threats occur when a previous judgement needs to be re-evaluated by members responsible for that judgement. For example, where a member has been involved in maintaining the accounting records of a client he may be unwilling to find fault with the financial statements derived from those records. Again, this would threaten the fundamental principle of objectivity. 

 

Circumstances which may give rise to self‐interest threats for members include:

1. business decisions or data being reviewed by the same person who made those decisions or prepared that data
2. being in a position to exert direct and significant influence over an entity’s financial reports
3. the discovery of a significant error during a re-evaluation of the work undertaken by the member
4. reporting on the operation of financial systems after being involved in their design or implementation
5. a member of the assurance team being, or having recently been, employed by the client in a position to exert direct and significant influence over the subject matter of the engagement
6. performing a service for a client that directly affects the subject matter of an assurance engagement.

When Self-interest threats may arise?

Self-interest threats may occur as a result of the financial or other interests of members or their immediate or close family members. An immediate family member is defined by the Code as a spouse (or equivalent) or dependant. A close family member is a parent, non‐dependent child, brother or sister, who is not an immediate family member.

Such financial interests might cause members to be reluctant to take actions that would be against the interests of the client. For example, if a member holds shares in a client company, he may be unwilling to give an unfavourable audit report. This would threaten the fundamental principle of objectivity.
 

Circumstances which may give rise to self‐interest threats for members include:

• financial interests, loans or guarantees
• incentive-based fee arrangements
• concern over employment security
• commercial pressure from outside the employing organisation
• inappropriate personal use of corporate assets
• close personal or business relationships
• holding a financial interest in a client or jointly holding a financial interest with a client
• undue dependence on fees from a client.

What are the potential threats in Auditing?

The application of the fundamental principles set out above is considered by the ACCA Code within a conceptual framework. This framework acknowledges that these principles may be threatened by a broad range of circumstances. This approach identifies the following five potential categories of threats to the fundamental principles:

1. Self-interest threat: For example, if the auditor earns a large proportion of his revenue from a particular client, he may be unwilling to upset that client by issuing an unfavourable audit report.
2. Self-review threat: For example, if the auditor performs accountancy work for a client in addition to the audit, he may find himself in a situation where he is reviewing his own work and may therefore not be as critical of it as he might be if he was reviewing someone else’s work.
3. Advocacy threat: For example, supporting the client in a legal case may lead to a perceived loss of independence.
4. Familiarity threat:For example, acting for a client for a long period of time may mean that the auditor becomes less critical of that client’s reporting practices.
5. Intimidation threat: For example, a strong finance director may intimidate junior members of the audit team and persuade them not to report errors found during their testing.

Limitations of the internal audit function

The main limitations of internal audit are as follows:

• Independence (or lack of) – can internal audit be truly independent of the organization or they are controlled

• Variation of standards – not uniform across the profession. Compare this with external auditors who, on a global basis, have ISAs against which their performance can be measured.

• Relatively new profession – still evolving in many companies may not have.

• Expectations gap – problem of what the internal auditor’s role is perceived to be.

• Understanding of internal audit – negative view by some – perhaps seen as ‘checking up’ on other employees on behalf of the superiors.

Role of Internal controls in risk management

One way of minimizing risk is to incorporate internal controls into a company’s systems and procedures.

Internal controls are any mechanisms built into a company’s systems and procedures to reduce the risk of error or fraud.

In other words, internal controls are a means of minimizing risk. They may not be able to:

But they may be able to:

• One person checking another person’s work.

• Locking vital documents in a safe.

• Restricting access to places with security systems.

• Restricting access to information and systems held on computers through passwords etc.

• An internal audit department which checks that procedures and systems are operating as they should.

• prevent an earthquake destroying a factory

• prevent a competitor coming up with a product which makes your product obsolete.

• reduce the risk that financial statements contain material errors

• reduce the risk of theft of the company’s assets

• reduce the risk that your business secrets might be handed over to a competitor.