Audit procedures direct auditors to examine and verify balances from various perspectives to form an opinion about their accuracy.
FREMONT, CA: The way technology has taken over most business aspects, the data has become more heterogeneous and unstructured. Data analysis plays an essential role in drawing meaningful conclusions from heterogeneous data. Larger audit firms and ever-smaller audit firms use data analytics as part of their client offering to reduce risk and add value to clients. For auditors, the main driver of data analytics is to improve audit quality. It helps better understand the organisation and identify risks. It helps generate audit programmes that address client-specific risks, allowing auditors to be timelier and more efficient in reaching outcomes.
The following sections discuss two critical areas on which auditors must focus their efforts:
- Accounts Payable
- Accounts Receivable
Some potential risks in accounts payable and their implications
The unauthorised supplier is compensated
Unauthorized suppliers represent a former supplier who provided goods or services deemed unacceptable and are consequently blocked from the supplier list.
Individuals or employees are compensated
Payments to individuals or employees indicate a diversion of funds from the company, indicating fraud.
Premiums are paid to a supplier that is not authorised
Premiums that are not authorised represent overpayments to suppliers in exchange for any undue favour.
Invoices are not paid on time
Delays in approving accounts payable can result in the loss of available discounts for on-time remittances and an understatement of liability for a particular period.
Duplication of invoices
Duplicate payments can occur due to failure to cancel documents to prevent re-use or as a result of processing errors in Accounts Payable, such as twice restoring a backup file.
Undetectable audit payments
Fraudsters arrange payments to avoid detection. For instance, a large amount may be divided into several smaller payments to align with the perpetrator's transaction approval limit, thereby avoiding more extensive payment limit checks.
Some potential risks in accounts receivable and their implications
Consolidation or summation of accounts receivable ledgers is incorrect
Certain items may be omitted. According to the direction of the error, the accounts receivable statement may be overstated or understated.
Credit is extended to customers who are deemed to be at risk of default
The business sells goods to customers for which they cannot recoup the cost. This could affect liquidity and bad debts.
Customers are billed twice
Due to double billing, revenue is overstated. It also affects customer satisfaction.
Account’s receivables are erroneous or misstatements
Accounts are entirely or partially inactive. False accounts result in fraud.
Incorrect credit and payment allocation
Accounts that are not adequately allocated result in inaccurate information and assessment.
The ageing of receivables may not be appropriate
If accounts receivables are not adequately aged, management fails to take timely action on past-due accounts.
Incorrect segmentation of the amount
This results in information manipulation and impairs the decision-making process.
See Also: Top 10 Security Solution Companies
