Risk Assessment Proces Case study Slovenian Construction Company

Transcription

1 Assessment Proces Case study Slovenian Construction Company Sabina Softic, Audit Director Deloitte Bosnia and Herzegovina Vienna, 6 February 2013

2 Assessment Procedures ISA 315: auditor should obtain an understanding of the entity and its environment sufficient to identify and assess the risk of material misstatement in the financial statements.. Industry, regulatory, financial reporting Operations, organisational structure, governance Strategy, measurement of the financial review ISA 240: When performing risk assessment procedures and related activities to obtain an understanding of the entity and its environment, including the entity s internal control, and procedures related to: Management and Others within the Entity, Those Charged with Governance Unusual or Unexpected Relationships Identified and other factors Evaluation of Fraud Factors

3 Based Audit TOTAL RISK BUSINESS AUDIT RISK Industry/ operational Compliance Financial Inherent Control Detection

4 Types of Assessment Procedures Inquires of Management and Others Assesment Procedures Analytical Procedures Observation and Inspection

5 Case study Slovenian Construction Company

6 Assessment Industry /Operational Going concern - Construction industry economic downturn, cut - backs in Government spending Going concern - risk of cash flow problems if stage payments are not timed correctly to meet the costs of construction, Government is a slow payer FS FS / Involve more senior and industry experts in the audit, increased professional skepticism, tailored audit procedures for GC assessment Assessment of the entity level internal controls (i.e. budgeting and cost control, financial management, cash flow projection), test od selected account balances (recoverability of trade receivables)

7 Assessment Industry /Operational Construction industry financial reporting significant estimates made by management (Revenue recognition, Cost to Complete, Provisions and Contingences, Receivables Collection, Timing) Long term business cycle (flexibility in responses to changes in the economy, impairment of assets / operating costs) FS / FS / Involve more senior and industry experts in the audit, increased professional skepticism, review accounting policies, test of controls over financial reporting and detailed testing in respect of these acc. Balances) Assessment of the entity level internal controls (i.e. budgeting and cost control, financial management, impairment testing)

8 Assessment Compliance Fraud risk management override of controls (incl. Management s Expert) Audit results in PY qualified auditors report due to IAS 11 scope limitation Other statutory / industry specific regulation FS FS Assessment of entity level internal controls over financial reporting & test of JE Discuss with Surveyor Assessment of the work performed by the Company s expert, focused testing in respect of the revenue / cost to complete, Assessment of entity level internal controls

9 Business Financial Revenue - percentage completion method (use of estimated figures) Revenue - fixed costs cost overruns inappropriately treated leading to revenue overstatement Perform analytical procedures. (comparisons - contract by contract basis, budget vs. actual) Test of details - vouch the accrued to invoiced revenues For all material contracts review contracts, periodic reports send to customers, perform post BS date review, review of the Board s minutes and Lawyer s letter

10 Business Financial Cost to Date labor fees, professional service fees, subcontractors, leasing, depreciation, transportation and insurance Cost to Date allocation of costs to individual contract may wrong Cost to Date / Inventory wrong treatment of inventory leading to overestimation of the stage of completion. Analytical procedures comparisons budget vs. actual, contracts to contract Test of details trace amounts to individual invoices, contracts, cut off testing For all material contracts visit the site and physically verify the appropriateness of costs allocated Review internal controls and procedures in place Attend inventory count on site for material contracts, test reconciliation and acc. entries

11 Business Financial Cost to Date validity of costs if no direct relationship between costs incurred and the stage of completion Cost to Date assessment of penalties for late completion of contracts Inventory stolen inventory due to poor security on the site Discuss the progress with Management and Surveyor, Review internal controls and procedures in place Analytical procedures comparisons budget vs. actual Test of details subsequent (post BS date) review, review the Boards minutes and lawyers letters Attend inventory count on site for material contracts, test reconciliation and acc. Entries with annual count report

12 Business Financial Allocation and absorption of site supervision and indirect costs Use and Company s expert work (Competence, Capabilities and Objectivity) Obtain a schedule showing allocation costs to individual contracts, determine whether reduction in contract activity is taken into account Education, qualification and experience; Methods used; Test of details subsequent (post BS date) review, compare actual costs with estimated total costs