Essay on Affordable care act Harvard Case Solution & Analysis

Risks Regarding External Auditors

External auditor also faces some risks and challenges which are, although, different from those of internal auditors, significant. Following are some risks faced by external auditor.

  • Reasonable level of Assurance: External auditor expresses his opinion on the report after taking reasonable level of assurance. An absolute level of assurance may not be attained because of the inherent limitations of audit together with inherent limitations of accounting and internal control system.
  • Risk of Fraud: External auditor faces the risk of fraud which includes the collusion among the staff of the company. External auditor is not expected to investigate fraud, so his opinion may be affected by the risk of fraud.
  • Detection, Risk: There is a chance that the procedures performed by external auditor may not be effective enough to detect the misstatements in the financial statements. It is known as detection risk. It is impossible to eliminate this risk completely because audit is done on a test basis. Every item is not examined by the auditors. It may be reduced by assigning capable audit team and designing appropriate procedures.
  • Quality Control Review and Procedures: Audit firm’s Quality control procedures and review needs to be constantly updating and applied consistently on the audit engagements to minimize the risks and concerns related to the quality of audit services provided to the client.
  • Understanding the entity: It may become a tough task to understand the entity and assess Inherent risk and Control risk. Because external auditor may not be familiar with the complexity and significance of the operations done in the entity’s business.
  • Professional Judgment and Professional Skepticism: The extent of professional judgment and skepticism applied by the auditor also carry some risks as it depends on the skills and abilities of the auditor.

 

Exposure to the Employer

The employer is vulnerable to many risks related to internal and external auditors. For internal audit, he needs to minimize the risks faced by internal auditors as explained above.  Some other factors for an employer’s exposure are:

  • Weak Control environment- No supervision etc.
  • Inappropriate Control activities- not having a proper internal control system
  • Ineffective and outdated Information system- Information and data provided is not correct
  • Incompetent management and staff- Failure to perform tasks effectively
  • Ineffective Internal audit department- Intervention of other departments in it
  • Not having appropriate standard operating procedures- No guidelines and standard set for the tasks to be completed
  • Inexperience and not highly qualified internal auditors- Not doing an audit effectively

These risks should be removed by having suitable structure, internal control system, QCPs and competent staff.

For external audit, some risks are as follows:

  • Modified report of the auditor due to material issues detected
  • Withdrawal from engagement due to circumstances created by the management of the company
  • Some material misstatements and fraud remain hidden

These risks if not responded appropriately will cause the reputation and goodwill of the company to decline.........................

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