International Auditing Standards Essay Example | Topics and Well Written Essays - 2250 words

International Auditing Standards - Essay Example ISA 400 provided a description of internal control and the types of internal controls, as well as the factors and procedures included in each type. One of management's responsibilities is to ensure that there are adequate internal controls implemented in an entity. What is required of the auditor is to have a "sufficient understanding of the internal control" as such an understanding will mean a more efficient and effective audit planning and audit approach". According to Ricchiute (2003), in actual application, to obtain such an understanding, the auditor will need to perform the following: (1) perform a preliminary review of the internal control system through the "review of prior-year audit working papers", inquiries of management and personnel and observations; (2) document the internal controls found in the system and identify transaction cycles, either through a flowchart or a "narrative memorandum"; (3) perform a walk-through of a sample transaction; and, (4) identify controls that will reduce to an acceptable or low level the risk of material misstatements (Ricchiute, 2003, p. 214 - 220). In number 4, the auditor may op t to perform only a walkthrough of a transaction or a walkthrough of the transactions and the related controls and test of controls. The choice depends on the auditor's assessment of control risk. If the assessment is high, the auditor will just do a walkthrough of a sample transaction and go directly to substantive testing. If the assessment is low, the auditor will have to perform a more detailed walkthrough, not only of the transaction but also of the related controls, and test the controls the auditor thinks will support the lower risk assessment. The understanding of the internal control system and the subsequent walkthrough or testing is critical to the external auditor since this will dictate the substantive audit procedures that will be done subsequently. This is because a lower level of control risk assessment will decrease the level of detection risk of an auditor. This generally means less extensive and persuasive substantive audit procedures that could be done during the interim rather than during the year-end, resulting to earlier completion of the audit work (Ricchiute, 2003, p. 232). What about fraud concerns, as these is one of the purposes for setting up the internal control system, in the first place' An external auditor's procedures "cannot be expected to detect immaterial frauds". If a fraudulent transaction or event results to a material misstatement in the financial statements, the external auditor's audit procedures may discover the fraud incident. However, "there is certainly no guarantee of detection" as the "perpetrator(s) may go to extensive lengths to deceive the auditor and hide the defalcation" (Tedd). Lastly, one of the concerns regarding ISA 400 (and the other auditing standards) is that this may

Nike Case Analysis Study Example | Topics and Well Written Essays - 1250 words

Nike Analysis - Case Study Example For fiscal year May 31, 2009, the company has reported revenues of more than $19 billion. These figures include sales for affiliate businesses such as Converse, Umbro, Cole Haan and Hurley International. While the company has recorded a 6% drop in its return on investment (ROI), Nike’s performance between 2005 and 2009 is so much better compared to the top 500 S&P companies. Nike’s success may be traced back to capacity to tap into the international market, which accounts for more than half of the company’s sales. Aside from this, Nike has chosen various Asian countries for their contract manufacturing base, allowing them to take advantage of low operational costs and even lower wages. Known best for its â€Å"Just Do It† Campaign which started in 1988, Nike has struggled with issues involving violations of human and labor rights, and deficiencies in health and safety conditions (Ferrell et al., 2011, p. 387). Like most companies that had to face human rig hts allegations, Nike’s response was slow and ineffective. According to an Amnesty International (AI) report, the company’s response may be summarized in four stages: denial, blame others, damage control, reassert control over damaged corporate image, and give appearance of compliance (Avery, 1999). At the beginning, Nike reiterated the efforts the company is making to improve working conditions and raising wages in countries where their factory is located. In a statement, Philip Knight said, â€Å"every Nike subcontractor is subject to systematic, unannounced evaluation carried out by Ernst & Young and that our own reviews†¦have shown that the Code [of conduct] is complied with in all material means† (as cited in Avery, 1999). Unfortunately, the review evaluation carried out by Ernst & Young did not reveal how may factories were actually audited and what tools were used to carry out its evaluation. Moreover, hiring its own evaluators to assess the companyà ¢â‚¬â„¢s operational practices was counterproductive, according to the company’s detractors. For one, how can a company release a negative report against the same people who are providing them with business? Moreover, as a growing company, Nike was too busy fulfilling client orders, its hiring and standard operating procedures were not yet a subject of scrutiny – until the Asian employees started their strike, that is. With thousands of people in their employ and hundreds of factory locations around the world, Nike failed to institute an internal auditing system (and an internal auditor) which could have helped them ensure the highly viable working conditions they wanted to provide. Another issue that led to Nike’s failure to address corporate responsibility earlier is the presence of a contract manufacture base denuded the company’s ability to monitor the activities in all its subcontracting plants. In addition, because many of the contracting plants wer e located in Asian countries, Nike should have installed an in-house representative who is tasked of ensuring that the new manufacturing plant has adopted the Code of Conduct. Transitions should have been made, and regular audit should have been scheduled to monitor the plant’s performance and adherence to the Code. Aside from its labor issues in the Asian territories, Nike has also earned the disagreement of several thousand people who were formerly employees