Page 91 - CA Final PARAM Digital Book.

• Benchmarking

Two most widely used ERM frameworks are: -

COSO Enterprise Risk Management – Integrated Framework developed by the Committee of Sponsoring
Organisations (COSO) to address the changes in business environment.

ISO 31000 Risk Management standard published by the International Organization for Standardization. It is
a risk Management standard published by the International Organization for Standardization and provides
guidelines on managing risk faced by organizations. The application of these guidelines can be customized
to any organization and its context.

QNO Control Activity-Performance Review New Course – (SM23)
40.550 TITANIUM CNO-- MRI.420
A company as part of its internal control set up has a system under which quarterly budgeted targets in
respect of sales are analysed with respect to actual performance achieved. It also involves fixing
responsibilities of different product departmental heads and taking timely correction. In case of product
departmental heads not achieving quarterly budgeted targets, they have to give a detailed justification
for the same and also lay down how shortfalls would be compensated in ensuing quarters.

Identify and explain component of internal control alluded to in above scenario.
Answer The above referred component of internal control is “Control activities”. Control activities that may be
relevant to an audit include policies and procedures that pertain to “performance reviews”.

Such control activities include reviews and analyses of actual performance versus budgets, forecasts, and
prior period performance; relating different sets of data – operating or financial – to one another, together
with analyses of the relationships and investigative and corrective actions; comparing internal data with
external sources of information; and review of functional or activity performance.

The control activities pertaining to analysis of budgeted target of sales with respect to actual performance,
fixing of responsibilities and taking timely corrective action falls in nature of performance reviews. Such
performance reviews are part of control activities which is a component of internal control.

QNO Audit Procedure in response to Exception Reporting New Course – (SM23)
40.850 TITANIUM CNO-- Unique
Background: During the process of extracting the exception reports, the auditors noted numerous
purchase entries without valid purchase orders.

Analysis: In terms of percentage, about 40% of purchases were made without valid purchase orders and
also few purchase orders were validated after the actual purchase. Also there was no reconciliation
between the goods received and the goods ordered.
Answer Deficiency: Validity of purchases
Pervasive/Account Balance Level: Account Balance level
Account Balance(s) affected: (i) Purchases, (ii) Account Payable
Audit Procedures: The following procedures may address the validity of the account balance:
• Meet with the company's Purchase officer and obtain responses to our inquiries regarding the purchases
made without purchase orders
• Review Vendor listing along with the ageing details. Follow up the material amounts paid before the
normal credit period and analyse the reasons for exceptions.
• Make a selection of the purchases, review correspondence with the vendors, purchase requisitions
(internal document) and reconciliations of their accounts.
• Discuss the summary of such issues with the client.

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