Category: Auditing

Introduction

The internal auditing panel is responsible for ensuring that all controls in an organization are working properly. All financial reports and statements must provide a true and fair account of the company (Gramling & Myers, 2006). In the current paper, the author will highlight the different roles of the internal auditor. The author will focus on what may happen if the internal auditor assumes or undertakes roles that do not belong to them. In addition, the situations under which the assessor may engage in duties beyond their specified boundaries will be reviewed.

Internal Auditing and Risk Management

The Legitimate and Core Roles of an Internal Auditor

Internal auditing is required to adhere to a set of rules and regulations. For example, as already indicated, the auditor should avoid carrying out duties that are not assigned to them. Many organizations are under pressure to identify the risks associated with their business activities. Some of these threats can be environmental, financial, operational, social, or even ethical. After identifying the risks, the management should devise ways to manage them (Beasley, Clune & Hermanson, 2005).

The work of the internal auditor is to detect these risks. They should also put in place measures to ensure that the threats do not harm the society in any way. The risks should also be evaluated. Effective monitoring must be carried out by the audit team to identify the chances of these threats taking place (Burnaby & Hass, 2009). It is also the duty of the internal auditor to ensure that time and other resources are effectively utilized to support the company’s leadership structure.

The in-house auditor is not responsible for making reports on the current condition of the firm. Qualification or disqualification of such reports is the role of the external inspector. It is noted that internal auditing is usually carried out by an employee of the institution. In most cases, the individual charged with this responsibility is the accountant. Segregation of duties is needed to avoid conflicts between internal and external auditors (Arena & Azzone, 2009).

The Likely Outcomes of a Scenario where Internal Auditors Carry out Duties that are not Assigned to them

The failure to carry out the specified duties on the part of the internal auditor may have significant impacts on the firm. Some of these consequences include the disruption of activities in the company due to conflicting roles. Another impact is the emergence of a weak internal control system. If the internal control system is weak, then the organization becomes vulnerable to risks (Beasley, Clune & Hermanson, 2006).

Using Auditing Standards to Deal with Situations where Internal Auditors Assume Roles that Affect their Objectivity

If internal auditing practices go against the set standards, then they should be changed (Fraser & Henry, 2007). According to the International Standards of Auditing, a weak internal assessment system should be eliminated. The independence and objectivity of the domestic auditor should not be compromised (Beasley et al., 2005).

Using Internal Auditing Standards to Determine whether In-House Assessment should Undertake Additional Engagements or not

There are several things that can make internal auditing to lose its objectivity. According to the aforementioned Internal Auditing Standards, the domestic auditor should avoid situations that may impair their impartiality. Social relationships and conflicts of interest should be avoided. An internal auditor is allowed to resign if they feel that their objectivity is impaired (Gramling & Myers, 2006).

Conclusion

The functions of the internal auditor should not be interfered with. Compromising these functions may lead to risks that can bring down the company. Segregation of duties between external and internal assessors should be enhanced. The situation promotes impartiality in financial reporting and risk management.

References

Arena, M., & Azzone, G. (2009). Identifying organizational drivers of internal audit effectiveness. International Journal of Auditing, 13(1), 43-60.

Beasley, M., Clune, R., & Hermanson, D. (2005). Enterprise risk management: An empirical analysis of factors associated with the extent of implementation. Journal of Accounting and Public Policy, 24(6), 521-531.

Beasley, M., Clune, R., & Hermanson, D. (2006). The impact of enterprise risk management on the internal audit function. Journal of Forensic Accounting, 1-20.

Burnaby, P., & Hass, S. (2009). Ten steps to enterprise-wide risk management. Corporate Governance, 9(5), 539-550.

Fraser, I., & Henry, W. (2007). Embedding risk management: Structures and approaches. Managerial Auditing Journal, 22(4), 392-409.

Gramling, A., & Myers, P. M. (2006) Internal auditing’s role in ERM. The Internal Auditor, 63(2), 52.

Audit Scope

The scope of audit work identifying different areas of investigation is set out in the following which would be carried out upon agreement with the company’s owner and CEO Mr. Ronald Trump.

Risk Assessment: The audit will identify and investigate accounting and reporting issues that may be considered as high, medium and low risks areas and may result in material misstatement (PCAOB, 2002)

Process Compliance: The audit will ascertain the sufficiency and accuracy of systems and procedures within the company so that their complacency levels for detecting fraud can be assessed. Overall evaluation of the working environment will be part of this as well (PCAOB, 2002).

Output Compliance: The audit will determine the relevance of information according to the various accounting assertions.

Integrity of Performance Reporting: The audit will evaluate the quality of information prepared by the company for internal usage.

Audit Activities

To meet the objectives of the scope of audit laid out above the following audit activities will be conducted:

1. The financial statements including the Balance Sheet, Income Statement, Cash Flows, and Changes in Equity of Torpus will be subject to examination.
2. The working papers used for the preparation of financial statements of the company will be examined.
3. Both manual and computerized accounting and reporting systems will be tested.
4. Different internal reports generated will be thoroughly checked.
5. Any internal control system that the company has in place will be evaluated.
6. Overall assessment of the business as a going concern will be established.

To carry out these activities the auditor will undertake both analytical and substantive testing procedures to form an independent opinion and duly submit it to the bank along with audit findings.

Information subject to Audit

Torpus’s financial statements are not audited therefore the auditor must subject the following information to audit procedures which would help in forming a final audit opinion:

1. The company’s balance sheet as of December 31, 2011, indicates the existing loan arrangement of the company for an amount of $56.772. The terms of the loan and related accounting records shall be examined to assess the company’s ability to meet its debt obligations and interest payments.
2. The horizontal analysis of the company’s balance sheets for the period 2011 to 2012 indicates a rise in inventory value by $35,990.00. The increase in value may be considered as a risk area and it will be subject to substantive testing for ensuring its existence and value.
3. The accounting treatment of different elements of the company’s financial statements will be checked by the principles and guidelines of FRSs. Furthermore, the accounting records maintained on information systems will be examined for the loss of information and compatibility with paper records.

Conducting Interview & Collecting Evidence

Interviews conducted for evidence collection during audits are typically aimed at recording both verbal and non-verbal cues using concrete, unambiguous and descriptive language for asking questions and responding. The interviews are aimed at staff who has considerable knowledge of the issues under review during the audit. Interviews allow auditors to gather responses regarding issues that require explanation and clarification to assess the sufficiency and appropriateness of the information. Non-verbal cues are no less important as they could allow auditors to grasp the reactions of interviewees to different questions and replies and probe further by asking additional questions. Evidence will be collected about identified risk areas from the examination of inventory, financial statements, internal documents, and information systems. As auditor observed that Mr. Ronald’s credit card did not work at the restaurant therefore further confirmation could be sought from the card issuing bank. The auditing standards provide guidelines for auditors to gather reliable and sufficient evidence by conducting the inquiry, observation, inspection, and analytical procedures based on an open vision and understanding of the risk issues to address them correctly.

Evaluation of Audit Evidence

The audit evidence collected through different techniques and testing forms the basis for the auditor’s opinion. It is the responsibility of the management to provide sufficient and credible information to the auditor and further accountability is suggested by reporting on the internal controls of the company. The evidence will be assessed for any form of materiality and possible risks of misstatement. From the evidence collected during the audit of Torpus it could be found that the company lacked internal controls and accounting information had been lost either through direct deliberation or system problem. Therefore it is difficult for the auditor to form an opinion on the financial statements of the company. To add to the difficulty the accountant of the company left for a holiday on the same day which suggests that the CEO does not want the auditor to investigate thoroughly and the accountant is not available to provide a duplicate of the income statement which implies that the evidence will be incomplete. The auditor must have sufficient evidence that will then be assessed according to different accounting standards and guidelines. The auditor’s intuition and judgment also plays important role in assessing the levels of risk associated with different issues. The overall objective is to form a high level of assurance which is subjective to information provided to the auditor.

References

PCAOB. (2002). AU Section 316: Consideration of Fraud in a Financial Statement Audit. Public Company Accounting Oversight Board. Web.

Auditing is the process of evaluating and analyzing a person, a system, an enterprise, a project, or an organization, in a bid to take account of certain resources. Audits are extremely beneficial in accounting; they are used to ascertain the reliability and validity of accounting information and to act as a way of assessing an organization’s internal control systems. Audits seek to give assurance that the financial statements of the organization or person under the audit are free of mistakes, and the information presented in the statements is correct and error-free (Cosserat and Rodda 2009, p112).

Traditionally, audits were mainly used to give information and reliable knowledge about the economic position of a financial system. However, auditors have recently begun including non financial reports in the audits (Kana 2008, p221). These include safety and the security of information systems and business environmental concerns. Auditors, as a result, should not have any financial interest in the firms they are chosen to audit. They should do their work devoid of any bias and come up with sincere and faithful reports regarding the audited books of accounting. While doing their job, they should follow the right procedure and work to ensure that they act in compliance with all the accounting rules and regulations, to come up with satisfactory results, which will prove their commitment to their job.

Auditors who fail to display their professionalism can be brought to action. This includes auditing firms where they have secret financial interests and committing other frauds of any kind while performing their duty (Gray and Manson 2007, p93). It is their responsibility to give a true report to the auditee, regarding the accounting books of the organization. Auditors who decide to forge information in accounting books to serve their own selfish interests can be brought into account, once proved. The auditee, in this case, should prove that their auditors made wrong reports intentionally. This means that the auditors may have intentionally hidden some sensitive information about the books, or introduced additional false statements to suit their interests. Auditors who are proved to be responsible for any intentional frauds can be brought to account.

Auditors are hired to act and serve the interest of the shareholders of an organization (Kana 2008, p228). They should, therefore, give them a firm assurance that their financial books are in their right state and that they have not been manipulated by the directors or any other person who holds responsibility for maintaining the financial books. Auditors who manipulate their reports will be acting in the interest of other parties, which may be possible proof that they are colliding with the management or, other unknown, people to commit fraud in the books of their auditees.

An auditor can also be brought to action for negligence (Cosserat and Rodda 2009, p117). This takes place when it is proved the said auditor did not comply with the relevant ISA during his duty, and that the procedure, he used for carrying out his audits was not complete or wrong. This means that the audit report will not serve its purpose since it will be below standards. Auditors are supposed to help identify any mistakes in accounting books and prove the validity of the information recorded in such books. An act of negligence means that the report will not serve its purpose (Gray and Manson, p109). Poor reports may mean that the accounting information that was audited may still have mistakes.

Auditors also have their rights of defense (Cosserat and Rodda 2009, p141). This is because they are human and they can commit mistakes to some acceptable level. It is hence vital for the auditee to carry out appropriate and intensive investigations. These will help to come up with sufficient evidence to prove that the auditor acted in his own interest. They will also help confirm that he intentionally committed frauds in their financial books to serve his selfish interest.

Reference List

Gray, M. I. and Manson, S., 2007. The Audit Process: Principles, Practice and Cases. London: Cengage Learning.

Kana, S., 2008. The Principles and Practice of Auditing. Cape Town: Junta and Company Limited.

Cosserat, W. G. and Rodda, N. M., 2009. Modern Auditing. New York: John Wiley & Sons’ publishing group.

Introduction

Auditing profession requires auditors to maintain professional independence throughout their audit engagement (Feldstein, 2002). Independence of an auditor is threatened by many factors such as financial interest and personal relationships between the auditor and the client’s staff. Professional skepticism is an important ingredient of the audit engagement and enables the auditor to gather sufficient evidence so as to give a reasonable assurance as to whether the audited financial statements are free from misstatements.

1. Professional skepticism in auditing profession refers to a situation whereby the auditor fails to accept the audit evidence which he has gathered at face value (Caswell & Allen 2001). This therefore means that the auditor has to exhaust all the sources of evidence on the audit assignment so as to get a reasonable assurance as to whether the financial statements are free from misstatements which may be caused by errors or frauds. The auditor should also critically analyze the evidence which he has gathered but avoid being overly suspicious.
2. Some of the specific examples of Will’s exercise of professional skepticism in this case include:

First, this was Will’s first audit assignment on his own at DB&H and this means that his work would be reviewed by other auditors so as to ensure correct reporting of the company’s performance. Will was going to be the only auditor in the offices of the town of Rosedale.

In addition, DB&H had been auditing the company for the last four years and they have encountered several issues relating to cash management. As a result of this, the auditors had issued several recommendations for the improvement of handling cash receipts and disbursements every year and most of them were disregarded.

Jessica Randle who was the assistant clerk of the Court for the town of Rosedale was the wife of Nacho who was Will’s great friend and also his long-time friend. This posed familiarity threat to the independence of the audit work.

Being the first audit assignment he handled alone, Will faced many challenging situations.

Of all the documents he traced or vouched, Will found that 90% of them had no problems but the other 10% had some supporting documents or signature missing. The explanation obtained for those anomalies were that, the person who was normally responsible for those records was sick or on vacation and so some records were not filed properly (Guy, Alderman & Winters 1999). In addition, whenever there was a misstatement, it was both unintentional and immaterial.

The work of ticket revenues followed the same pattern. Of the 20 ticket revenues selected, 18 were paid by check, credit card or money order while the rest were paid cash. One of the two cash payments did not appear to have been made from that day’s bank deposit. One cash receipt was not banked that day. A check on the possible deposit later in the week revealed that no deposit was actually made.

A ticket marked as paid in cash in the receipt book but not showing in the bank deposit raised a lot of eyebrows. The ticket showed as paid in Sheriff‘s computer and the daily receipts voucher.

The attempt to include particular ticket revenue in the next day’s deposit raised suspicion. The explanation that the ticket fell from the drawer and was never noticed also fuelled suspicion

Jessica’s tendency to work until late hours was a source of suspicion.

Will found a suspicious penned letters in blue ink which was written by his friend on the deposit slip

The entry in the receipt book in black ink and the envelope in blue ink caused suspicion. They ought to have been completed the same time.

Cash receipt dated November 16, 2005 but recorded as paid with money printed in 2006 raised a great deal of suspicion.

• DB&H had been auditing the accounts of the town of Rosedale for the last four years and had never experienced any problems. The audit firm also had a good relationship with the mayor and the financial staffs of the municipality. This implies that the auditor was likely to get all the information he deemed necessary for the audit work. The municipality was small in size and therefore had a small number of activities. It is also likely that the systems adopted were not very complex and would not render the audit work difficult.

Will should have obtained correspondences from the client’s bank so as to confirm the actual bank balance as well as ascertain the date at which the deposits were made. In addition, Will should have compared cash receipts for the current period with those of the previous periods and obtain explanation for any material differences. Will should also have assessed the effectiveness of internal controls regarding authorization of banking.

Auditors’ independence as provided for by the generally accepted auditing standards

The generally accepted auditing standards require that the auditor must ensure that he remains independent in fact and appearance municipality ( Byrnes, McNamee, Brady,Lavelle & Palmeri 2002).

Independence in appearance refers to the way the auditor is being viewed by the general public. This boosts the confidence of the users of the audited financial statements. This is achieved through ways such as; avoiding long relationship between the auditor and the client. It can also be achieved by avoiding taking audit engagements in an organization where the auditor has financial interest or has a close member of his family working in the client’s company.

The code of professional conduct addresses the issue of personal client relationships with the auditor (Bazerman, Morgan & Loewenstein 1997). This is because personal relationships between the auditor and the client threaten auditor’s independence which is the cornerstone of any audit engagement. If the auditor’s independence is threatened, it becomes difficult for the auditor to approach the audit engagement with the required objectivity and this might have serious repercussions to both the auditor and the client. The reliability of audited financial statements is highly dependent on the degree of the auditor’s independence and so the higher the auditor’s independence the higher the reliability of the audited financial statements.

Auditor’s independence in appearance refers to the perception of the auditor in his work by the users of the financial statements such as investors and shareholders. Auditor’s independence in mental attitude refers to the ability of the auditor to arrive at independent audit decisions even in the circumstances where his position is likely to be compromised or his independence is perceived to be threatened (AICPA, 1983). Even if the auditor is independent in mental attitude, some factors may make him not appear independent.

In this case, Will’s independent is highly jeopardized because of factors such as personal relationships with the client’s staff. In addition, the audit firm has not been paid for the services it rendered in the past and therefore appeared sympathetic to its client. The audit firm, DB&H has also been auditing this client for a considerably long period of time. All these factors make it hard for Will to report objectively about the operations of the client’s business.

The factor that plays the greatest role in determining auditor’s independence is the auditor’s is the financial interest in the client’s business.

The profession should put in place stringent standards to ensure that auditors are distanced from any form of financial interest in the client’s business. In addition, stiff measures such as revocation of practicing certificates should be put in place so as to ensure the auditors perform their work in the best interest of client and the general public.

The evidence in support of Jessica’s position includes; the ticket was marked as paid cash in the receipt book as well as in the Sheriff’s computer.

When Jessica was asked why the ticket was not showing on the bank deposit, she seemed unsurprised and demonstrated confidence that everything was right. In addition, she was ready to give explanations about the possible causes of the mishap some of which included the ticket being mixed together with the cash not banked. Jessica was also forthright in assuring Will that the ticket will be recovered from wherever it had been misplaced. True to her words, she engaged in thorough search of the ticket and eventually got it and gave it to Willy.

However, it is quite suspicious how the cash deposit had fallen in between the cabinet vault and went unnoticed even the following day. In normal circumstances the money ought to have been locked up in the cabinet waiting banking the following day. In addition, it is clear that at the end of the day the assistant clerks would check the receipt book and prepares the voucher which is sent to Sheriff’s office for the update of all the tickets paid in any particular day. The assistant clerks are the ones who prepared the deposit slip for any cash or check payment and eventually make the deposit. This created a big room for misappropriation of cash.

Internal controls

Maintenance of a cashbook and its daily update was much necessary. In addition, daily reconciliation of bank’s position with the cashbook position was equally important. This would help to reveal all the banked deposits and unbanked money at the end of the day. The cashbook and daily receipt book should be maintained by independent persons. Preparation of the bank deposit slip should have been done by an independent person who was not involved in the recording of receipts or payments. Banking should have been made at regular intervals so to ensure that no cash was held by the receiving clerk. Rotation of duties of the receiving clerks should have been emphasized and a comparison made of the collections made by different clerks Customers should have been encouraged to pay through non-cash means such as credit cards or bank transfers and obtain a valid receipt upon every payment made in the organization.

The auditors analyzed the degree of co-operation obtained from the clerk of the organization as well as the type of representation obtained from the staffs of the organization.

The auditors also took into consideration the statistical sampling techniques used as well as the sample size of various items being audited.

The auditors considered the materiality levels of the fraud detected. They also considered the impact of the detected fraud on the overall organization and in particular the effect on its going concern (Guy, Alderman & Winters 1999).

The auditors took into consideration the degree of misstatement and assessed various levels of qualifying the auditor report. This qualification includes; adverse, except for and disclaimer opinion.

The auditors indicated all the weaknesses discovered in the internal control systems of the organization and gave recommendations of how these weaknesses could have been counteracted.

Pressures faced by auditors in their auditing work

This was Will’s first engagement on his own at DB&H and therefore his work would be reviewed. This means that Will did not have full confidence in the work and even if he detected certain frauds, he would not trust his competence. This made him make numerous consultations from his colleague whom he believed had a vast knowledge and experience about such engagements.

Auditors face many pressures while dealing with misappropriation of assets or fraudulent financial reporting. These pressures include; increase in auditor’ exposure to criminal and civil liabilities. In most cases, fraudulent financial reporting is supported by complex systems which the auditors have little knowledge about. These systems make it very difficult for the auditor to effectively audit transactions thereby making it hard for them to make an informed opinion. In other cases, the management of the client’s business might engage in a scheme so as to defraud the client. These schemes include insider dealings and they are difficult to detect.

Due to the above reasons, the auditor might issue an unqualified report while in an actual case he ought to have issued a qualified one. This exposes him to both criminal and civil liabilities.

One of the alternatives is to ignore the fraud detected in the ticket. The consequences of this would include; successive perpetration of frauds and eventually collapse of the organization. This would in turn expose the audit firm to criminal and civil liabilities as well as jeopardize the audit firm’s reputation.

Another alternative is to request the assistant clerk to pay the misappropriated money and escape legal action and whistle blow. The consequences of this would include; falsification of records so as to cover the stolen funds. This may also involve “creative accounting “so as to conceal the frauds.

Conclusion

Auditor’s independence is crucial in any audit engagement since it boosts the confidence of the users of the audited financial statements (Feldstein, 2002). It is therefore imperative that auditors appear to be independent and maintain independence in mental attitude so as to make the audited financial statements reliable to the users and also avoid liabilities. Where the auditors’ independence seems to be under threat, he should resign from the assignment.

References

American Institute of Certified Public Accountants (AICPA) (1983). Audit Risk and Materiality in Conducting an Audit. Statement on Auditing Standards No. 47. New York, NY.

Bazerman, M. H., Morgan, K. P. & Loewenstein, G. F. (1997). “The impossibility of auditor independence.” Sloan Management Review. Summer: 89-94.

Byrnes, N., McNamee, M., Brady, D., Lavelle, L. & Palmeri, C. (2002). “Accounting in crisis.” Business Week. January 28: 44-48.

Caswell, B. & Allen, C. (2001). “The engagement team approach to independence.” Journal of Accountancy 191 (2): 57-63.

Feldstein, D. ( 2002). “New SEC trading ruling may be insiders’ defense.” Houston Chronicle. January 21 (A): 1.

Guy, D. M., Alderman, C. W, & Winters, A. J. (1999). Auditing. 5th Edition. Fort Worth, TX: The Dryden Press.

Auditing refers to the practice of assessing the financial statement of an organization to ascertain its truthfulness and validity. The procedure of executing this exercise depends on the policies set by the auditors in relation to the General Accounting and Accounting Policies (GAAP). Due to the rampant dynamics, in some scenarios, auditors adopt the policy of evaluating and establishing the evidence of some segment or the whole of financial statement. Based on the auditors’ opinions concerning an organisation’s financial statement, the organization’s stakeholders become enlightened on the appropriation of funds. In case of fraud, errors, or misappropriation of finances, auditing reveals the hidden secrets or manipulation of data in the financial statements.

The practice of conducting auditing on some selected transactions is considered to have both beneficial and detrimental effects on the opinions concerning financial statements. In the event that auditors test the validity and truthfulness of only some transactions, a realistic judgement that shows the status of the few departments would be obtained. This allows the auditors to analytically and critically scrutinise financial statements and obtain the true reflection of organisations’ use of funds. Additionally, auditors can draw the appropriate opinion on the manner in which financial statements are prepared, and establish their soundness. In the case whereby different auditing exercises are executed by multiple auditors on different transactions in the same organization, an appropriate opinion that is valid for the whole organization can be obtained. This is in contrast to the exercise when executed once on the whole organisation. It portrays the opinion in a precise and concise manner, which puts into consideration some of the minor elements considered valuable. The practice of auditing only the selected transactions may be unrealistic in evaluating and obtaining the evidence of the financial statements since some of the important elements may be omitted. Moreover, the management and employees could use this fact to keep the embezzlement and misappropriation of funds away from auditors.

An audit by a Certified Public Accountant (CPA) is considered by the general society to be negative and non-significant. However, in reality, it has its own core importance. Auditing plays a crucial role in assessing the effectiveness and truthfulness in presenting financial transactions of an organization. Despite the fact that the society claims auditors are non-contributory to the gross national product through their task of evaluating other peoples’ financial work, the auditing exercise is very critical in preventing the embezzlement and misappropriation of funds. Additionally, auditors contribute significantly to the well-being of the society by assessing other peoples’ transactions to avoid fraudulent activities in organizations. In this regard, auditors can detect the errors or falsification that exists in financial statements hence giving the correct financial position of an organization.

There exist several benefits in the event that an auditor recognises the significance of footnotes that underlie statements of financial performance and position. In this regard, footnotes contain important elements of financial transactions that cannot be presented in financial statements. Furthermore, these notes portray some elements, which contribute to the preparation of financial statements in the manner found by the auditor. Consequently, when an auditor gives some note to the footnotes inclusive of the financial statements, he or she can draw a realistic opinion of the nature of financial statements.

In the event that Sasha Koslvo wishes to start an independent auditing firm, it will be mandatory for her to confirm to the GAAP. These policies dictate that a recognizable auditor should be a CPA. Such credential enables the auditor to become acceptable by any organization. With the experience that Sasha has, she can conduct auditing practices in conjunction with a qualified CPA for her enterprise to be successful. Additionally, the acceptance and approval of Sasha in the market will contribute significantly to her experience and management skills.

Proposal

This proposal looks at the related problems of lack of internal control function in Tamweel Islamic Finance which was founded in 2004 in a partnership between Istithmar controlling 22 % and Dubai Islamic Bank controlling 20% of total free float. Specifically, the proposal dwell on the human resources problems specifically in the auditing segment experienced at Tamweel Islamic Finance Company.

Scope

In this project, I will be discussing a problem in a company in a defined industry. I will provide a proposal in which I will argue about the problem. Afterwards, I will be presenting researches on the effect of that problem on the company and ways on how to solve the problem. Finally, I will be presenting the outcome of my research and will include ways on how to overcome this problem, argue it, and try to solve it. The scope will resonate on problems experience in the audit control and organization challenges experience in this finance institution. Specifically, the scope dwells on the problems as a result of failure and weaknesses in the internal control science.

Company Introduction

Background

Tamweel Company was introduced in 2004 and has grown to be the largest in Abu Dhabi real estate industry. It is a government owned real estate firm. It is located in Middle East. Currently, the institution has financed property worth over AED 10 billion. The Tamweel offers services especially in the real estate industry. It is one of the most active financiers of real estate development in U.A.E.

Specifically, Tamweel Company specializes in financing investment projects following the Islamic Sheria. Among the finance models it adopts include the Ijara. Ijara is a contractual agreement in which Tamweel purchases an asset from the owner for a defined amount as demanded by the client. Later, this property is rented to the same client on a periodic lease agreement. On the other hand, Murabaha is another finance model practiced by the company. In this model, the company enters into a contract with a client following a mutual agreement based on the promise made by the client to honor the pledge. In addition, the Istisna’a finance model operates on an agreement with the client in which the company erects a premise in line with the particulars defined in the requirement blue print which automatically becomes valuable upon completion s per the set deadline. Besides financing property development, the company deals in brokerage among other activities. The company also participates in staff assistance programs that are aimed at instilling moral suasion in business. It serves as a subsidiary of Dubai Islamic Bank. The company has four branches across the United Arabs Emirate. Currently, Tamweel only control forty percent of ownership which is opened to foreign trade. As part of its policy, this institution specializes in customer based vis-à-vis in line with the Islamic Sheria provisions.

Vision

“To become the most admired leader in the financial industry regionally”

Mission

“To maximize shareholders value and become the first choice fiancé provider through securing home base, product and service differentiation and regional expansion”

Core Values

“Caring professionalism, reliability, teamwork, preserving confidentiality, and inclusively Islamic”

Financial performance

The Group is engaged in the business of property leasing and trading in accordance with Islamic Sharia’a. It is important to also point out that the financial statements are also prepared in accordance with Sharia’a. Total operating income for the institution was AED 646 million in 2010. In 2011 it went down to AED 601 million. The financial performance for the 12 months ended December 31, 2011 shows that the institution made a net profit of AED 102 million. This is a 242.3% increase compared to AED 26 million net profits earned in 2010. Also, net profit reported in the fourth quarter of 2011 amounted to AED 31 million. This was up by 287.5% (AED 23 million) reported in 2010. Basic earnings per share were AED 0.03 per share in 2010 and AED 0.10 per share in 2011. Total assets for Group was AED 10.2 billion in 2010 down to AED 10.0 billion in 2011. The robust financial performance of the Group was as a result of turning Tamweel into a subsidiary of Dubai Islamic Bank. Dubai Islamic Bank holds 58.2459% of the shares while the general public holds the remaining number of shares which amounts to 41.7541%.

The table below shows the performance of this company in 2007:

Union Property market Ratio

Union Properties

Notably, the revenues for this firm increased in 2006 financial year up from $381m experienced in 2005 to $688m. Besides, Net income also experienced upward trend from $159m to $167m. However, the aim of pursuing geographical expansion has been experiencing a series of financial constraints since over reliance on the already congested Dubai market has put the company on the verge of collapse. Despite series of development plans in place for expansion, it is apparent that the outcome is worrying! Therefore, this necessitates inquiry into the structural organization and efficiency especially in the Audit section which function to spur growth through reviewing decision science and viability before implementation.

Products

As mentioned earlier, the company trades in real estate financing. Currently, the company offers five key products. These are home finance plus, home finance takeover program, BAITI-National home finance program, home refinance program and non- residents program. These programs are run concurrently though each is independent of the other. The products offered by this financial institution are distributed across the major region of United Arabs Emirate. Specifically, the institution major on financing real estate projects for short term, midterm, and long term.

People

The board of directors is made up of seven members. It is chaired by Abdulla Ali AlHamli. Five people make up the management team. The acting chief executive officer is Varun Sood. Other members of management are the Chief Business Development officer, Chief financial Officer, Chief Operating Officer, and Chief Risk Officer. Besides, the institution has several specialists in the fields of accounting, actuarial science, finance, and economics among others. These employees work under the departments of development, finance, operations, and risks. The audit chapter is found within the finance department.

Internal Control in Financial Companies

Fraud is very common in financial companies all over the world UAE companies included, even in the best of financial times fraud due to lack of internal control in companies is still reported, but, this problem grows substantially in times of financial recession (Ford 34). For diverse reasons financial companies like Tamweel often have weaker internal controls than other industries, this is alarming because the best financial companies like Tamweel are at great risk, they might lose up to or greater than 5% of their annual income to fraud. Due to fraud, companies in the United Arabs Emirate have lost large sums of money due to misappropriation, lack of accountability, and inadequate support systems that monitor progress and use of company resources. But, fraud is not the only reason for financial companies to adopt strict formal internal controls. Internal control assist in making transactions and business processes more efficient, and it improves accounting functions (Ford 144). Reflectively, an efficient and systematic accounting system acts as a shield against misappropriation and monitors the same.

In the financial industry internal control is necessary due to the diversity of financial services offered by the companies, as already discussed in the background to Tamweel, this company offers over 15 different services, the services are also scattered in various construction sites, real estate development sites, property and rental housing locations. This diversity makes bookkeeping vulnerable in this company due to lack of sufficiently enough personnel to handle every particular hitch in bookkeeping. The vast number of customers served by this company is also a need for internal control and finally, the fact that committees in charge of the internal control does not act in a swift manner to deal with fraud and other internal vices immediately, correcting and identification of negative issues concerning internal control tend to be a great challenge to financial companies (Ford 65). In an efficient control matrix, these aspects must operate simultaneously within the set guidelines that determine and create a scheme for control. Unfortunately, the above scenario has not been the case.

Lack of Internal Control in Tamweel P.J.S.C

Bloomberg business week (2009) describes Tamweel P.J.S.C. as a company with unlimited financial operations, and this makes it prone to suffering from lack of internal control (Bloomberg business week 21). There have been a couple claims of lack of internal control in this Saudi Financial hub. Khan (2008) wrote an article titled “No slowdown in corruption fights” (Khan 2), in which he hinted about lack of internal control in Tamweel. Ford (2007) notably, emphasized that even though there is a steady growth in Dubai’s business and financial companies, Tamweel P.J.S.C. face a struggle with several internal corruptions suggesting lack of internal control. The magnitude of corruption is worrying and beyond negligence. Specifically, this suggests that the company has weak or unreliable internal control models or systems. Tamweel being one of the financial companies mentioned in this article.

The irony in the fight against lack of internal control in U.A.E comes with the fact that The Dubai Financial Authority (DFA) has no responsibility for any financial organization/company that fails or is not able to maintain its internal control (Ford 48). In response to the earlier sentiments by the whistle blowers, Tamweel in 2009 outlined what they described as an effective risk management structure; this was reflected in Tamweel’s 2009 financial report. This report gives the responsibility of maintaining internal control, to an effective internal control system that is managed by The Audit and Risk Management (ARM) Committee. The success or failure of Tamweel’s ARM Committee can only be evaluated through a well structured research and this is the essence of this research.

Research Problem

Problem Statement

Internal Audit function is of essence in a financial institution. In many jurisdictions, it is mandatory to have independent internal audit functions in financial institutions. Many people consider internal audit as the overseer of an institution operations. This is because they report directly to Board Audit Committee. The Audit committee is expected to offer adequate support to internal audit to ensure that internal controls are adhered to. Unfortunately, there are scenarios were the internal audit department is not efficient and therefore fail to take up key control issues in time. Also, the department may get compromised and collude with management of an institution to commit fraud. This trend may go on for a long while for as long as the board is not efficient. Therefore, it is important to have an effective board audit committee to review internal audit department on a quarterly basis. Further, the board of directors may engage external bodies such as external auditors or government regulators to review activities of internal audit and the quality of their work. In addition, these managers are attuned to events and people surrounding them and appreciate the essence of analyzing forecasted turbulent turns and twists within the organization. Unfortunately, artistry approach is neither quantifiable nor precise since it only interprets experience on basis of components that can be appreciated, understood, and felt simultaneously. Generally, the art of internal control is intrinsic of ambiguity, subtlety, and emotion. On the other hand, a well structured institution consisting of an expertise mandated with the responsibility of systematic knowledge gathering from which testable and definite condensed results are achievable. Tamweel lack these and is prone to manipulation by employees.

Justification of the Research Proposal

Background and Significance

Internal control is a systematic measure that is instituted by an organization in order to maintain efficient and cost effective operation matrix. Further, internal controls aid in safeguarding assets and resources of an entity, helps in deterring and detecting errors, fraud and theft, ensure accuracy and completeness of its accounting data. Also, they produce reliable and timely financial and management information and ensure adherence to its policies and plans. Therefore, it is important that to have effective internal controls within an organization to ensure efficiency. Besides, it is important for an institution to also have effective risk management. Ultimately, the responsibility and accountability for the Group’s risk management rests with the Board of Directors. Management of risk is driven from the top down by those charged with the whole responsibility of managing the risks. Currently, the actual status of internal control in Tamweel is not certain; this is due to lack of latest published financial audit and statements, there is no properly formulated and carried out research on the internal control of this company and finally there are various literature that suggest lack of internal control in this company. Since the literature are speculative, implying that they lack the backing of a conducted scientific research, aiming at establishing the lack of internal control, estimating its extent and finally, suggesting the preferred solution to the negative outcome, the lack of internal control in Tamweel still is a big set back to its public relation and financial performance. Therefore, the research problem questions is, what factors or occurrences are responsible for the weak audition control system in Tamweel finance institution ? Are these problems quantifiable? What is an alternative model to address these challenges?

Objective Aim

The objective of this study is to provide sufficient information to the management of Tamweel Finance institution of the real management problems that have facilitated occurrence of lose management blamed for the challenges in the finance company. This objective substantiates differences between management, employee behavior, and professionalism in monitoring control system. Thus, the management may find this information vital in improving monitoring and audit systems, investor’s confidence, and inclusive structuring as the market may demand. The procedure can be applied to other branches across the region of U.A.E. The findings may be necessary in creating satisfactory management practices and policies at micro and macro levels. Besides, the objective is to obtain information that the management team may use to formulate an inclusive behavior control and monitoring techniques expected of the employees. On the other hand, the management team might find this information necessary in creating future structures that can boost performance of auditing modules. In addition, the study may present a stable and relevant base for understanding poor managerial structure in organizations n the process of giving an expansion into existing literature review on the same.

In summary, the aims and objectives of this research paper are:

To gauge and quantify the reasons for the occurrence of internal problems associate with failure in the audit department of Tamweel finance institution

To identify the management weaknesses that exist within the hierarchy of authority and management faculty at Tamweel finance institution

To identify the effects of these internal problems on the finance, human resources, and social aspects of Tamweel financial institution

Statement of Research Questions

1. To what extent, if any, does employee satisfaction and motivation contribute to fraud and misappropriation in branches of Tamweel?
2. To what extent, if any, does lack of internal control affect performance of Tamweel institution?
3. To what extent, if any is there a relationship between the internal management and misappropriation especially on the facets of auditing unit?
4. To what extent, if any, does the quality of management practices differ from those of the neighboring companies dealing with the same products?
5. To what extent, if any, does management models allow for easy manipulation of company accounts?

Hypotheses

Below are the null and alternative hypothesis based on the research problem.

• H1o. There is no link in management efficiency and fraud at Tamweel finance institution
• H1a. There is a link in management efficiency and fraud at Tamweel finance institution
• H2o. There is no link between the level of employee satisfaction and corruption in Tamweel financial institution
• H2a. There is a link between the level of employee satisfaction and corruption in Tamweel financial institution
• H3o. There is no link between management structures operating in Tamweel and the ease of misappropriation of company resources
• H3a. There is a link between management structures operating in Tamweel and the ease of misappropriation of company resources
• H4o. There is no link between the quality of management practices at Tamweel and chances of internal fraud
• H4a. There is a link between the quality of management practices at Tamweel and chances of internal fraud
• H5o. There is no relationship between performance of audit monitoring instruments and fraud in Tamweel
• H5a. There is a relationship between performance of audit monitoring instruments and fraud in Tamweel

Literature Review

Creswell (1994) asserts that research methodology revolves on a quantifiable relationship existing between structural orientation of an organization and performance indicators within the desirable limits (Creswell 26). Further, Creswell (1994) opine that proper placement of monitoring systems such as an efficient audit procedure may be the solution to financial misappropriation and fraud in big organizations (Creswell 24). In addition, Creswell (1994) conclude that the essence of maintaining an efficient and streamlined management structure is to provide a predictable and easy to monitor system that minimize case of fraud while at the same time improve on efficiency (Creswell 41).

According to Biswas (2011), companies that have strong structural systems are the least affected by fraud since every activity and channel is easy to monitor at minimal cost. Specifically, the auditing unit of such institutions is objective and engaged in keeping the brand of audit periodically and balancing (Biswas 56). In relation to Tamweel, the company has experience series of financial swings which made the company withdraw from stock market trade in 2006. Besides, performance has been unpredictable despite being an established entity with four branches across UAE.

PEST Analysis

In order to understand the underlying aspects associated with the problem statement in this research proposal, it is of essence to reflect on important aspects such as political, social, environmental, and other aspects that directly influence the current trend in performance and company structure flexibility. Specifically, this part reflects on the aspect of social factors and cost balancing that has direct impact at micro and macro levels of company performance. In order to understand the instability as a result of environmental uncertainty, the proposal presents a check list of cataloguing framework that regulates and manages diversity associated with political, social, economic, and technological spheres.

Specifically, the proposal dwells on the results on the periphery of merits and demerits of these aspects and how they are associated with lack of internal control in Tamweel Company. The company has evolved from offering simple financial services to technologically advanced products which are very complex and detailed and have been tailored to the customer’s specification. For instance, their well organized unique packaging and distribution network has made the company a house hold name in the global business arena (Kothari 76). Detailed appraisal of cultural, economical, and demographic inclination of Tamweel Company clearly indicate that its market is fast growing with a substantial population who actively are users of their products. This forms the basis for feasible investment position. With an already existing marketing structure, though currently dysfunctional, Tamweel should apply cauterization of management control and audit consciousness because the most of its employees are Muslims controlled by the Sheria laws.

The challenges that Tamweel Company faces in the fresh re-entry bid include limited political, cultural, social freedoms encircled in a religious parameter and its Sheria laws based business platform. This arrangement concentrates on the moral aspects of doing business and controlled profit maximization. Therefore, some employees are likely to take advantage of the loosely functioning monitoring structure to carry of fraud and other under dealings. Besides, there are legal restrictions and poor infrastructure challenges which are encountered. For instance, the law protects employees even when accused of fraud as long as the legal system has not given a verdict. These restrictions make investigations and prosecution expensive in terms of finance involved and time. However, the legal avenues for prosecution available outweigh the challenges. Putting into consideration of the external and internal dynamics, Tamweel Company should create a flexibly, self regulation and consistent monitoring structure in order to reduce loses as a result of inconsistency in decision science and misappropriation of company resources. Also, this strategy will facilitate the restructuring effective employee awareness to develop structure knowledge and respect for law and order. If well merged with appropriate management mix, the strategy will secure a continuous quantitative increase of market by constantly maintaining relatively fare prices of the products it’s offering as well as the maintenance of up to per competition levels from other agricultural competitors as employees will internalize moral suasion and respect the evaluation structure (Khan 34).

In order to enhance the achievement of the same, the company needs to introduce different auditing policies which in return will attract various types of control management thus creating consistency and fear among employees who might be tempted to fraud it. Consequently, managers will be required to maintain the monitoring and success of the evaluation procedures and endeavors of the company. In line with the management principles, this recommends the proper scrutiny of various factors creating a direct or indirect impact on the economic trends and changes of the economy of UAE. The products of Tamweel need to be integrated into the achievement of various organizational goals through the distribution processes to ensure that the products reach all designated customers without fraud (Khan 12).

SWOT Analysis

Also known as TOWS analysis, this analytical tool presents potential organizational opportunities and advantages attached to the same in an evaluation facets of weaknesses and strength in the measurement scale. In order to understand the position of Tamweel Company on the facets of organizational weaknesses and strengths, this proposal reflects on threats and environmental opportunities as a strategic tool for management analysis. The proposal identifies threats, strengths, opportunities and weaknesses of Tamweel Company especially on the basis of management structure.

Strengths

Tamweel Company has public awareness programs through advertising a range of financial products and frequently diversifying some of the products from its new customers that have worn out. The success of this marketing initiate is as a result of constant evaluation criteria of the effectiveness of its marketing strategies by the quantity in terms of figures of customers in UAE consumption market. As mentioned earlier, the company trades in real estate financing. Currently, the company offers five key products (Kothari 76). These are home finance plus, home finance takeover program, BAITI-National home finance program, home refinance program and non- residents program. These programs are run concurrently though each is independent of the other. The products offered by this financial institution are distributed across the major region of United Arabs Emirate. Specifically, the institution major on financing real estate projects for short term, midterm, and long term. Currently, the company has no major competitor and controls the major share of housing finance market. The company has successfully financial strategies and qualified management team consist of experts in financial services.

Weaknesses

Tamweel have weak internal controls putting the company at great risk. At present, the company loses up to or greater than 5% of their annual income to fraud. Due to fraud, the company has lost large sums of money due to misappropriation, lack of accountability, and inadequate support systems that monitor progress and use of company resources.

Opportunities

The company offers the best tailored products that suit the expanding market of UAE. Besides, its flexibility and diversity is a common ground for minimizing risks involved in doing business. At present, the demand for competitive financial services has been increasing steadily (Khan 32). Fortunately, the company is co-owned by Dubai Islamic Bank which controls 58% of its shares. Therefore, the company is in a better position to expand due to its strong liquidity and easy accessibility of loans from the partner bank. Notwithstanding, diversification of the economy has led to the definition of the inter dependence of sector components of the economy that translate to the realization of a restricted business operation. Besides, the finance departments operating in UAE, foreign trade plays a great role in the market operations. Further, this interaction has a direct impact on the economic currency value of the country. Fortunately, the company has strong expansion ability that can be exploited to reap maximum benefits from this scenario.

The penetration strategy should be that which causes minimum disturbances to the company both in terms of financial resource and the daily organizational activities of the company. Potential target markets have been established in a number of ways and means. The two general ways of differentiating and segmenting the UAE market would be through using the basic consumer based market segmentation procedures and the enterprises’ opinion of the same. For consumer based segmentation technique, the company will be involved in the evaluation of the different groups in the given market and their specific and respective consumption needs. To a great extent this particular criterion lays strategic regards to the issue of the consumer involvement in the designing of the product (Kothari 76). Fortunately, the company already has an established penetration strategy which is applicable in the macro and micro market segmentation.

Threats

A comprehensive analysis of the financial performance for the 12 months ended December 31, 2011 shows that the institution made a net profit of AED 102 million. This is a 242.3% increase compared to AED 26 million net profits earned in 2010. This is in consideration of all the global economic hardships that had hit businesses all over. It is undeniable that the investment costs will be high and this may in turn be felt on the calculations of the final profit. However, this could be in the short term (Kothari 66). With an overtime focusing, this trend might capsize in the years subsequent to the second and third years of business in UAE. Factually, this is a large market share that may trigger profitability. Similarly, due to the expansion and development of the market share, there might be other potential buyers who may seek to make their material purchases through the company directly. However, the aim of pursuing geographical expansion has been experiencing a series of financial constraints since over reliance on the already congested Dubai market has put the company on the verge of collapse. Despite series of development plans in place for expansion, it is apparent that the outcome is worrying!

Research Methodology

This term refers to a comprehensive yet systematic method of collecting, grouping, and analyzing raw data into scientific reasoning data. In the process, the result combines purpose of the research and actual, outcome (Babbie 57).Research methodology includes qualitative, quantitative, and mixed methods which are used either independently or simultaneously in experiments, surveys, studies, cross sectional and descriptive research. According to Kothari (2004), research design resonates on the facets of research project blue print that comprises of study operations to create an efficient outcome that yield the desired information at minimal cost (Kothari 76). In order to achieve the desired outcome, a quality research should assimilate systematic investigation characterized by phenomenon approach of a scenario through statistical, mathematical, and computational modus operandi (Kothari 56).

This study will use a systematic quantitative research method in collecting data. Reflectively, Non-experimental quantitative research design determines existing or perceived relationship between dependent and independent variables of any given study population (Mugenda and Mugenda 12). In collective quantitative data, survey instruments will be employed across the study. The study opts for Quantitative data collection method since it is economical on time, finance, and energy unlike qualitative method which may not be economical especially when the sample size is put into picture. However, this method limits natural expression of ideas and attitude towards the study and objective especially in responding to questions asked or reflecting on a secondary thought.

Target Population and Sample Size

The population targeted by this study includes top management team at Tamweel finance institution. Specifically, the study target managers in the finance and control departments where fraud and case of corruption are rampant. By definition, a study population is a cluster of persons or items who share common goals or aspect the study is attempting to prove. In other words, a population is the subject of inquiry in order to draw inferences form previous assumptions. Specifically, Tamweel finance institution comprises of three major departments, that is, finance, human resources, and control or operations. In order to create unbiased outcome, purposive sampling as a method of data collection is adopted since it is easy to use and gives room for selection of specific desired characteristic or event for a predetermined objective. The research assumes that top management has the desired information since they are the engine which make decisions and participate directly in management of every aspect of the organization. Besides, the research assumes that these top managers are well equipped with professional skills and understanding of the operation models that directly impact performance of a company. Therefore, the sample size consists of five senior managers, twelve assistant managers and eighteen junior managers for every branch. The total population of this study will include four branches. Therefore, the total number of the sample population is 140. In data collection, the research will use close ended questionnaires from low management level, middle management level, to top-level management regime. To generate the sample size for this study population, the research will adopt the formulae created in 1972.

Sampling Formula

n=N/ (1+N (e²))

Where:

• n = sample size
• N= Target population
• e= Degree of freedom
• n=140/ (1+140*0.05²))
• n=140/1.35
• n= 103.7037

The target population is 140 management staffs in four Tamweel branches spread across the regions of United Arabs Emirate. From this population, random sampling will be applied to 20 top managers in the three ranks of management and questionnaires with close ended questions given to each (Babbie, 2002). The procedure will be applied for mid level managers and low level managers in the firm.

Data Sources and Rights of the Participants

Primary data will be used in addressing each research question. According to Crewell (1994), primary data collection method includes use of observation, questionnaires (both close ended and open ended), interviews, and focus discussion groups (Crewell 34). Specifically, this research study employs close ended questionnaires. According to Mugenda and Mugenda (2003), questionnaires used in data collection can both be open ended and close ended depending on the nature of data and population of interest (Mugenda and Mugenda 17). In this study, close ended questionnaires are used as the only means of data collection. This is because close ended questionnaires are easy to track since the respondent is directed to state specific answers to specific questions generated from the objectives and hypothesis. The study opts for close ended questionnaire in data collection since it is economical on time, finance, and energy unlike qualitative method which may not be economical especially when the sample size is put into picture. Since questionnaire is an example of quantitative data collection method, analysis would not be complex as other qualitative methods.

Validity and Accuracy

Validity and reliability determines the accuracy of collected data in research. Specifically, this is controlled by the nature of data collection instruments applied by a researcher. By definition, validity refers to the magnitude and level of accuracy the obtained results align towards the pivotal research phenomenon. In order to achieve validity in questions presented in the questionnaire, it is essential to carry out question pre-testing. The process of pre-testing eliminates awkward or offensive questions and eliminates ambiguity since it labors to effect changes where recommended before the actual study (Mugenda and Mugenda 31). On the other hand, reliability quantifies the magnitude of consistency of research instruments and the outcome created by the same (Crewell 32). Therefore, efficient use of these tools and instruments ensure that reliability and validity of data collection tools are piloted in a process referred to as pre-testing. Thus, a pilot study will be carried out in one branch of Tamweel Company which represents 10 percent of the population of the study. This is necessary as a precaution against using a data collection tool in full research before determining its relevance and efficiency. After the pre-testing procedure, the most appropriate research tool (questionnaires) will be embraced in the study.

Data Collection Procedure

In the collection of data procedure, the research will embrace technology by use of emails and faxes to post questionnaire to top management bracket since reaching them would consume a lot of time. However, the research will adopt a drop and pick module for middle and low level managers who are readily available across the departments. Each respondent will be given a time frame of a week to respond to questions in the questionnaire.

Data Analysis

Appropriate tools for data analysis will be used to analyze and draw inference from data collected. Since the data collected will be of quantitative nature, inferential and descriptive statistical analysis tool will be employed simultaneously. According to Miller (1991), quantitative statistical analysis includes use of standard deviation, frequencies, mean, percentages, and median in inference. The collected quantitative data will be coded and passed through Statistical Package for Social Sciences (SPSS) version seventeen. In the process, cross tabulation will be used to compare and contrast management structures, management styles, employee satisfaction, auditing procedure, and magnitude of fraud for each across the ten branches. In addition, descriptive statistics including percentages, means, frequencies, and standard deviation will be used to describe target population properties. In order to quantify relationship between the independent and dependent variable, ANOVA will be essential besides figures, charts, and tabular representation of correlation analysis.

Legal Issues

Before commencing data collection process, the researcher will have to get permission from the relevant authority at Tamweel finance institution. According to Kerridge, Lowe, and McPhee (2005), ethics control judgment into right and wrong behavior orientation. Besides, ethics governs human welfare and conduction in a continuous process of interaction. This aspect is relevant in research actualization since data collection will involve exchange of information in an interactive forum (Kerridge, Lowe, and Mc Phee 45). Confidentiality and winning trust of the target population determines the success of a research project. Therefore, the study will endeavor to keep the names of research targets as confidential as possible.

Conclusion

Conclusively, this research paper will largely depend on quantitative data collected via use of close-ended questionnaires. After data collection, SPSS and descriptive statistics including percentages, means, frequencies, and standard deviation will be used to describe target population properties. The target population will be contacted through emails, fax, and physical interaction for low-level managers. The study attempts to identify an internal control problem especially in the auditing department and its effects on the magnitude of fraud in Tamweel Finance institution. The study targets a population of 350 management employees of Tamweel Company.

Gantt chart for project period

Weeks

Key

• Activity 1 Proposal Development
• Activity 2 Literature Review
• Activity 3 Research on research models
• Activity 4 Data Collection
• Activity 5 Data Analysis
• Activity 6 Generating draft of the research proposal
• Activity 7 Actual report writing
• Activity 8 Draft finalization
• Activity 9 Presentation

Works Cited

“Thrifts and Mortgage Finance Tamweel P.J.S.C” Bloomberg Business Week (2009): 20-21. Web.

Babbie, Eddie. Survey research methods. 2nd ed. Belmont: Wodsworth, 2002. Print.

Biswas, Soumendu. “Commitment, involvement, and satisfaction as predictors of employee performance.” South Asian Journal of Management, 18.2 (2011): 92-107. Print.

Creswell, John. Research design: Qualitative and quantitative approaches. Thousand Oaks, CA: Sage, 1994. Print.

Ford, Neil. “Saudi banking.” Middle East, 37.6 (2007):48. Print.

Kerridge, Lowe M, and McPhee J. Ethics and law for the health professions.2^nd ed. Sydney: The Federation Press, 2005. Print.

Kothari, C R. Research methodology: Methods and techniques. New Delhi: New Age International (P) Limited Publishers, 2004. Print.

Miller, Delbert. Handbook of research design and social measurement. New Park, CA: Sage, 1991. Print.

Mugenda, M and Mugenda G. Research methods: Quantitative and qualitative approaches. Nairobi: Acts Press, 2003. Print.

Khan, Sermad. “No Slowdown in Corruption Fight.” The National: 2008. Web.

The recent high-profile accounting frauds witnessed across the world have raised serious concerns among investors and law enforcement agencies. Despite being audited by the Big Five Auditing firms, accountants and managers have found a way of duping their companies and the shareholders. This has resulted in massive losses for the affected companies. Consequently, the reputation of these audit firms has come under fire for failing to recognize, prevent, or stop accounting frauds. Many pundits point at the deterioration of quality of auditing services provided by the Big Five auditors as the most likely cause of failures in early detection. However, this paper aims at exploring the complexities in accounting and the need for forensic accounting in guarding against fraud.

On Tuesday, January 11, 2012, the world awoke to disturbing and shocking news (SkyNews, 2012). Olympus, a leading Japanese camera manufacturer, was using a number of its executives for alleged accounting fraud involving over $1.1 billion. This was and remains Japan’s worst accounting scandal ever. Interestingly, the whistleblower was then the chief executive Mr. Woodford. In a drastic effort to salvage the company’s image, the company fired all executives who were subject to the lawsuits. However, this proved a case of too little too late, as the damage caused was irredeemable.

Crimes involving financial reporting are not new (Zack, 2009). Zack further asserts that it is the techniques used that change (p. 75). In the Olympus case, the top executives of the company conspired to hide company losses from the shareholders and the public for 13 years. Over the period, the company used dodgy deals to conceal heavy investment losses incurred. This, therefore, meant that the company’s financial report portrayed a string of successes during the period while the company was incurring substantial losses. Olympus’ management embarked on an acquisition program, in which liabilities of acquired assets were overstated to make up for losses resulting from poor investment decisions.

The cover-up was an elaborate plan to make financiers and shareholders believe that the company’s financial position was stable. This was to ensure ease in securing loans and acceptable stock market operations. However, on correction of the said errors, the company’s assets became dangerously thin. It was established that shareholders’ equity was just $361 million. This translated to only 4.5% of the company’s total assets. Worst still, the company’s share price dropped by a whopping 60%.

The increased complexity in business operations today has increased the chances of accounting fraud (Singleton, 2010). The desire to post favorable financial statements for the public at the end of each financing period may push accountants and managers to manipulate a company’s financial reports. This is unacceptable, but the temptation is often hard to resist. As such, stringent measures should be introduced to curb such unprofessional practices. This should include the adoption of forensic accounting, the introduction of strict acquisition and merger rules, and strict regulation of auditing firms to reduce the chance of auditing errors.

In conclusion, accounting fraud affects business operations adversely and must be discouraged. Therefore, auditors must closely scrutinize major and minor business transactions, which may act as opportunities for auditors and managers to “smoothen” their evil and unscrupulous deeds. Accounting reporting may never be the same again after the revelation of such high magnitude cases, but all stakeholders must strive to bring sanity back to the profession.

References

Singleton, T. W. (2010). Fraud Auditing and Forensic Accounting. Hoboken, NJ: John Wiley & Sons.

SkyNews. (2012). Olympus Sues Executives Over £1.1bn Fraud. Web.

Zack, G. M. (2009). Fair Value Accounting Fraud: New Global Risks and Detection Techniques. Hoboken, NJ: John Wiley & Sons.

Introduction

“So long as there are financial, economic or industrial institutions in existence it is likely that the practice of auditing will never really lose relevancy” (Deming, 1979: 197-208). This statement by Deming (1979) shows the current importance of auditing within financial and business practices to date and exemplifies the integration of internal and external auditing practices within an era of increasing financial and commercial integration (Deming, 1979: 197-208). Despite this, it must be questioned whether the practice of auditing in its current form remains fit for its purpose given recent developments which have cast significant degrees of doubt over the integrity/effectiveness of the practice (Ramirez, 2009: 127-149). This is in reference to auditors who have colluded with company management in order to present false financial data in order to cover-up mistakes or create an appearance of improved fiscal performance when in actuality there were significant degrees of performance deterioration. Furthermore, it was noted that internal auditors had a hand in a variety of Wall Street/ London scandals who actually manipulated financial data due to external collusion with third parties involved in a particular case (seen in the manipulation of financial loan data between Barclays and other banks involved in the case).

Failures on the part of external auditors from evaluating the strength of various financial institutions during the buildup to the 2008 financial crisis was also noted as a failure on the part of the profession to prevent the deterioration of the U.S. housing market in favor of “going with the flow” due to the supposedly “secure” nature of the mortgage backed securities system that was developed which many criticized as being nothing more than a stop gap measure which actually caused the crisis to spread to various global financial institutions. Lastly, it must be noted that in the case of regulatory audits the current trend in business process outsourcing wherein companies contract third party manufacturers or providers in order to handle various aspects of their business has created a situation where regulations and standards applicable to a company within the U.K. for instance are not applicable when it comes to the case of a company based in China, India or the Philippines.

This has created a host of problems regarding compliance due to the fact that a company based in the U.K. can comply with various industry regulations and standards which are there to protect workers and the environment but its suppliers or manufacturers do not necessarily have to comply with these standards since they are under a completely different regulatory environment. Such a practice in effect defeats the purpose of auditing since the usual methods of oversight are no longer applicable in this particular instance. Not only that, U.K., U.S. or Australian based auditing practices are not necessarily applicable to foreign based manufacturers such as those in China (who ironically have very little auditing practices) which prevents accurate data about a company’s current level of operational efficiency from being properly evaluated. It is this and a variety of other examples that it becomes questionable whether auditing in its current form remains fit for its purpose of evaluation.

Addressing the Issue of Ethics within the Auditing Profession

In his evaluation of current ethical violations within the auditing profession Broeker & Nest (1967) cites the following classic phrase as the primary reason behind the dubious ethical nature of several auditors: “Quis custodiet ipsos custodes” – namely “who watches the watchers” (Broeker & Nest, 1967: 75-78). Examining auditing practices which have misled investors through the manipulation of financial data or through “glossing over” of the facts in favor of favorable results McKee (2010) explains that one of the primary reasons behind this is due to the fact that auditors often do not receive punishment commensurate to the impact of their activities (McKee, 2010: 60-62). He points to examples seen in 2009 and 2010 which examined the reasons behind the financial crisis and reveals that despite the obvious nature of financial duplicity involved, there were few cases where the internal/external auditors who were meant to prevent such practices from coming to pass were punished in any way (McKee, 2010: 60-62). He points out that a certain level of duplicity was involved wherein despite the obvious problems evident with the internal practices of several financial institutions the auditors in charge either saw the data and refused to publish it or merely did not do their jobs at all and performed a superficial examination of the financial data of the banks and mortgage companies that were responsible for the sheer glut of toxic housing debt (McKee, 2010: 60-62).

This practice, while not endemic to all aspects of the profession, is worrisome given the potential adverse impact this may have on the financial system as a whole wherein through negligence and ethical dubiousness without sufficient repercussions adverse practices may continue to go unchecked resulting in negative spillover effects which could result in more financial turmoil (Carmichael & Fritzemeyer,1970: 67). While it may be true that a variety of auditing organizations do exist within the U.K., U.S. and various other countries these organizations are often times insufficient in their ability to enforce the same amount of punishment seen in cases in the medical profession involving malpractice, unethical behavior or gross negligence of any kind. It is based on this that McKee (2010) recommends the implementation of methods of proportional liability within the auditing industry wherein through evidenced negligence or ethical dubiousness an auditor should be held liable for the full impact of their action/inaction (McKee, 2010: 60-62). By doing so this creates a process wherein auditors would be more inclined to do their jobs properly rather than subject themselves to possible harsh penalties as a result of inaction or unethical action. McKee (2010) further postulates that it would also be necessary to implement far stricter methods of external evaluation of auditors due to the nature of their position. Such practices are often seen in the field of medicine wherein external inquiries regarding the nature of treatments administered and methods of patient care are evaluated in order to determine whether any wrong doing is in effect.

Outsourcing and its Effects on Auditing

As a direct result of globalization and the greater integration of financial markets, it has become all too easy to shift resources from on portion of the world to another. This of course has brought about the practice of outsourcing which has shown the inherent limitations of the practice of auditing given new business process circumstances that auditors have to deal with. External and regulatory audits can no longer be sufficiently implemented in the case of companies that are outsourcing their manufacturing and services processes since third party suppliers and service providers are not subject to the same auditing practices as the company that outsources the services in the first place (Zerni, Kallunki, & Nilsson, 2010: 1169-1206). This was seen in the case of Apple Inc. and it outsourcing of the manufacturing of the iPhone and iPad to companies such as Foxconn whose internal practices are considered “inhumane” by various members of international community due to the long hours and the fact that the wages given are a pittance compared to that of their foreign counterparts. It is based on this that it must be questioned whether auditing has lost its relevancy in a shifting business environment wherein differences in auditing regulations and practices across a varied amount of international locations has in effect limited the ability of the practice to do what it was meant to do. For example, it must be noted that one of the responsibilities of auditing is to ensure that a corporation is complying with local environmental laws and regulations (Kinney, 1975:117-132).

This is an important facet of the practice since it prevents corporations from performing business practices which could cause long term detrimental effects on the environment. Unfortunately, once outsourcing enters the picture this allows a third party to manufacture the product of a company at another location that does not have the same level of environmental laws and regulations which prohibit such behavior (Lehmann & Norman, 2006:65-83). As such, while the main company is for all intents and purposes in “compliance” with regulations as per standards of auditing, in reality its supply chain is in effect in direct violation of environmental regulations. Beattie, Fearnley, & Hines (2012) examines this issue by stipulating that as various societies continue to become more concerned regarding the implications of unregulated corporate action (this has already been noted in the case of China wherein protests regarding environmental and financial mismanagement have subsequently influenced government actions) this would in turn result in the creation of stronger auditing systems within the countries where outsourcing occur thus resolving the aforementioned issues pointed out earlier (Beattie, Fearnley, & Hines, 2012: 111-129). Unfortunately, Beattie, Fearnley, & Hines (2012) points out that this may take a considerable amount of time and as such shows how auditing at the present remains ill-suited to deal with the current issues that it is confronted with given the increased propensity for outsourcing (Beattie, Fearnley, & Hines, 2012: 111-129).

Discussion

Based on the various aspects related to the practice of auditing at the present, it can be seen that the field is currently faced with the necessity of reform in not only implementing a greater degree of responsibility for auditors regarding their actions but also the necessity of implementing methods of operation for auditors that are in line with standard ethical practices. Cases such as those involving auditor complicities in dubious financial transactions casts a shadow on the field whose original purpose was to ensure that such actions were prevented in the first place. Thus, from an ethical practice standpoint, given the current noted deficiencies in auditing practices it can be stated that while the tools of the profession fit its purpose, the ethical structure from which it is based on requires a considerable degree of revision in order to impart a greater degree of personal liability in order to dissuade unethical actions. If such aspects were present prior to the 2008 financial crisis and the various lapses in judgment by auditors in several high profile Wall Street cases, then it could have been possible that such incidents could have been prevented in the first place.

When it comes to the concept of outsourcing and auditing it becomes all too clear that auditing at the present needs to impart a certain degree of responsibility on the main company for distinctly unethical actions in various aspects of its supply line. At the present, auditing is more concerned with whether a company itself, rather than aspects of its international supply chain, is in compliance with various rules and regulations. This I believe is a failing on the part of the profession since the supply chain is an integral component of a company’s operations. The lack of sufficient focus on the supply chain of a company has left “the doors wide open” so to speak when it comes to distinctly unethical actions in violation of financial and environmental regulations and as such practices need to be reformed in such a way that a company’s compliance to rules and regulations must include what it does with aspects of it supply chain. The main purpose of auditing in the first place is to evaluate and ensure compliance, if a company is able to skirt around this by utilizing a loophole in regulatory practices then it is necessary to implement new auditing practices that take this into consideration and adjust as needed.

Conclusion

Based on an evaluation of appropriate academic literature, it has been critically evaluated that the extent to which auditing in its current form remains fit for purpose is such that it is currently lacking in terms of sufficient liability for the actions/inactions of auditors as well as its inability to properly implement policies and regulations when it comes to companies that outsource various aspects of their operations.

Reference List

Beattie, V, Fearnley, S, & Hines, T 2012, ‘A Real-life Case Study of Audit Interactions—Resolving Messy, Complex Problems’, Accounting Education, 21, 2, pp. 111-129, Business Source Premier.

Broeker, M, & Nest, R 1967, ‘Audit Problems Relating to Review of Internal Control’, Journal Of Accountancy, 123, 2, pp. 75-78, Business Source Premier.

Carmichael, D, & Fritzemeyer, J 1970, ‘Accounting & auditing problems’, Journal Of Accountancy, 130, 6, pp. 67-73, Business Source Premier.

Deming, W 1979, ‘On a Problem in Standards of Auditing From the Viewpoint of Statistical Practice’, Journal Of Accounting, Auditing & Finance, 2, 3, pp. 197-208, Business Source Premier.

Kinney, JR 1975, ‘A Decision-Theory Approach to the Sampling Problem in Auditing’, Journal Of Accounting Research, 13, 1, pp. 117-132, Business Source Premier.

Lehmann, C, & Norman, C 2006, ‘The Effects of Experience on Complex Problem Representation and Judgment In Auditing: An Experimental Investigation’, Behavioral Research In Accounting, 18, pp. 65-83, Business Source Premier.

McKee, TE 2010, ‘The ‘Cry Wolf’ Problem in Current Fraud Auditing Standards’, CPA Journal, 80, 1, pp. 60-62, Business Source Premier.

Ramirez, C 2009, ‘Reform or renaissance? France’s 1966 Companies Act and the problem of the ‘professionalisation’ of the auditing profession in France’, Accounting, Business & Financial History, 19, 2, pp. 127-148, Business Source Premier.

Zerni, M, Kallunki, J, & Nilsson, H 2010, ‘The Entrenchment Problem, Corporate Governance Mechanisms, and Firm Value’, Contemporary Accounting Research, 27, 4, pp. 1169-1206, Business Source Premier.

Background

Allen Hall Food Court generated its revenue from the sale of food and beverages. The food court had classic meal plans that could be paid for using credit cards. The revenue generated by the enterprise was used to facilitate the operations of the food court. For example, the costs of the cafeteria’s supplies, equipment and other expenses were met by the generated revenue. The payroll and overtime were also met by the proceeds from sales. The food court had one opening that was used as the entrance and exit for staff and clients. The hall was closely packed with chairs and tables. This audit inspected the operation procedures of the cafe to ascertain its effectiveness during service delivery to its clients.

Objective

This audit aimed at evaluating the effectiveness of the café’s operations. It also aimed at providing recommendations to improve the operations of the food outlet.

Scope

The report covered the period from 12/01/2015 to 12/03/2015. Thirty three clients filled in questionnaires after which their responses were tallied. The questions ranged from food quality, cleanliness, the safety of the court, the efficiency of service delivery to overall satisfaction. The clients filled the questionnaires willingly during the period of data collection. The clarity of prices was also included in the questionnaires to determine whether the clients could find prices of all meals with ease. The Hanger report revealed some of the flaws within the court that needed to be rectified. The compilation of the report encompassed the input of 33 auditors who helped in providing unbiased conclusions.

Conclusion

The efficiency of the entire process of service delivery was rated as average because the clients reported that the outlet served food within two minutes. However, this time should be reduced to a minute or less because consumers were time conscious and did not wish to waste their time waiting. The cleanliness of the floors needed a turnaround whereas the arrangement needed to be reorganized. The conditions of the cleaning equipment and cloths needed improvement to ensure the hygiene of the court met the required standards. Meeting all the requirements as needed by the law was important for the success of the business as well as client satisfaction.

Observation 1: Cleanliness

The management and personnel checks according to the State of Ohio Standard Inspection Report Authority Chapters 3717 and 35715 indicated various violations. The first violation was 3717-1-03.4 Food: Limitation of Growth of Organisms of Public Health Concern that held the firm responsible for poor handling of food at various temperatures that compromised the safety of the food. For example, the presence of white cheese stored at 44 ^oF was tangible evidence for the violation. The right handling temperatures for cold and hot foods were stipulated as 41 ^oF and 135 ^oF respectively to restrict the growth of bacteria and possible food contamination.

The food court violated section 3717-1-03.2 Food: Protection from Contamination after Receiving. Food received should remain clean and fit for human consumption. The handling of food after receipt determined the cleanliness of the food. The inspection reported that there were limitations on the use of wiping cloths. The wiping cloths and their containers were stored inappropriately (on the counter) thereby causing contamination. The sanitation of the rags could be improved by soaking them in sanitizer solutions at the right concentration to prevent bacterial growth and food contamination.

Surfaces used for food preparation and cleaning were found to be damaged. The surfaces needed to be free of cracks, pits, or any imperfections that could accumulate dirt or debris as indicated by Section 3717-1-04.5: Equipment, Utensils, and Linens. The storage of clean equipment was also a cause for concern because the auditors found that some items were not inverted or protected from contamination. The handling of the kitchenware and tableware in the hotel was improper because their orientation with respect to the handles was not observed. For instance, ice-cream scoops with handles had their handles facing different directions, which increased the chances of touching the lip-contact surfaces and contaminating them. The maintenance of worn-out machines was poor. For example, the ice machine had a large hole on top, some pipes were unsealed, and a moldy caulking was found behind the 3-compartment sink.

Recommendations

The temperatures of food storage should be set to the required values to limit the growth of bacteria. The wiping material should be sanitized with an appropriate sanitizer at the right concentration to avoid any contamination of food. The equipment used in the preparation of food and surfaces where foods were placed should be free of cracks or dents that could accumulate food debris, which could encourage bacterial growth. The surfaces and utensils should be cleaned thoroughly. This task could be achieved by having specific workers assigned to clean. After cleaning, the equipment should be stored in raised areas about six inches above the ground. The equipment should be inverted in a clean and dry area that was free of any contamination. The kitchenware and tableware ought to be arranged with all handles facing one direction to reduce possible contamination of food and lip-contact surfaces. The physical facilities should be repaired to maintain them in the required operating conditions. The moldy caulking needed to be replaced, whereas the ice machine required to be repaired by sealing all holes around pipes.

Observation 2: Court Layout

The layout of the kitchen was not up to the required standards as it lacked a separate exit door from the main court. In the event of an accidental fire, the safety of the chefs and workers in the kitchen would be at a risk because they would only have one door to exit the premises. The workers in the kitchen would be forced to use the same door as the customers making a quick exit impossible given the number of tables and chairs that filled the court’s hall. This arrangement predisposed the workers and customers to the danger of stampedes that could cause loss of lives in case of fires or any other emergencies. The absence of checking out and billing queues was a major problem because it led to clustering of customers instead of queuing. The arrangement of the hall was poor hence making movement difficult due to the proximity of tables and chairs.

Recommendation

The kitchen should have an exit door, which should be strategically placed in an area that was visible to all workers. The door should also be large enough to accommodate many people at a time (about three to four people). The kitchen arrangement should allow the movement of the workers without meeting obstacles in the form of kitchen equipment. The tables and chairs in the main hall should be arranged with adequate spaces between them to facilitate the ease of movement. The billing and checking out queues should have waiting line barriers for demarcation of spaces that could be utilized in case of an emergency.

Observation 3: Prices

The absence of prices or failure to state the prices of some items such as coffee was not appealing to the clients. The number of clients who stated that the prices of food items were not clear was high (approximately 25% of the total respondents).

Recommendations

All food items should have accurate prices indicated. The position of the price tags should be easily located on the items. Variations of prices on given items should be captured directly on the menu.

Observation 4: Controls over Inventory

The responses from 19 out of the 33 auditors indicated that theft of inventory was probable. These responses accounted for 58% of the auditors and pointed towards a weak internal control of inventory. Inventory management was crucial for the profitability and success any business. Failure to manage the inventory was likely to cause serious problems, for example, financial losses to the company that could lead to the laying off of the suspected culprits.

Recommendations

The control of inventory should be assigned to an individual for accountability and ease of administration. The inventory should also be kept under lock and key in a specified store. Access to the store should be restricted to a few individuals and the person in charge of controlling the inventory. Additionally, the inventory should only be issued upon request to avoid possible wastage or theft.

Trial balances and an audit trail are some of the useful reports in the running of a business. “A trial balance is chiefly prepared to examine the arithmetic accuracy of accounts” (Banerjee 2010, p. 273). For that reason, a trial balance is not an account, but a list of account balances. “In accounting, an audit trial is the sequence of paperwork that validates or invalidates accounting entries” (Rouse 2005, para. 1). In computing terms, an audit trial is an electronic log that tracks all activities of a computer (Rouse 2005). This essay explains the usefulness of a trial balance and the audit trial in a business.

A trial balance is prepared at the end of a financial period. Therefore, it is an important undertaking when a business is closing its books. A trial balance is used to find out whether a company’s books are still in balance (Banerjee 2010). In addition, a trial balance enables a business to trace errors in accounting entries. One finds out that there are errors in the various entries when the trial balance fails to balance. Some of these errors include failure to book one side of a ledger account, entering different figures for the same entry and booking a debit entry as a credit entry or a credit entry as a debit entry (Banerjee 2010). However, a trial balance does not disclose all errors. Some of the errors not disclosed by a trial balance include errors of commission, omission and principle (Banerjee 2010). There are two methods of extracting a trial balance. The first method involves use of ledger account balances. In this case, all debit balances are listed on the left side of a trial balance and the credit balances on the right. The other method involves use of control accounts such as the sales and purchases ledger (Angelfire, n.d.).

An audit trial is a report that confirms that certain accounting operations or events took place at a given time (Rouse 2005). Therefore, an audit trial traces the source of accounting information (Investopedia n.d.). In addition, this report records improper activity in a company’s computing department. In e-commerce, companies use audit trial to document customers’ activities (Rouse 2005). All the transactions between the company and the customer are, hence, recorded in an audit trial. These records are later used to respond promptly to inquiries and complaints from customers. Improper market activities are also traced using an audit trial (Investopedia n.d.). In this case, an audit trial analyses and documents all brokers and houses taking part in a specific trade. As a result, it is easier to indentify a culprit when problems arise. An audit trial can also be used to reconcile accounts. In addition, this report facilitates planning and budgeting as it provides a historical report. Moreover, incase of tax audits, an audit trial provides a record showing all sales entries. Furthermore, an audit trial is one of the most important tools in investigations involving cybercrimes (Rouse 2005). For instance, investigators follow the activity log of a hacker’s internet service provider to expose him.

Trial balances and audit trials help a business to run its operation smoothly. A trial balance makes sure that all accounts are arithmetically correct. On the other hand, an audit trial ensures that all computing and accounting operations can be traced to their source.

References

Angelfire n.d., Control accounts. Web.

Banerjee, B.K 2010, Accountancy for class xi, PHI Learning Pvt. Ltd, New Delhi.

Investopedia n.d., Audit trial. Web.

Rouse, M 2005, Audit trail. Web.