Revenue Business Cycle
Risks and Controls
–
Processes,
On 5 July 2011, 30 accounting and law professionals
gathered for the first collaboration between ICPAS and
the Singapore Academy of Law. Held at the Viewing
Gallery of the Supreme Court Building, Mr Loh Ji Kin,
Corporate Advisory Director of Nexia TS Public
Accounting Corporation and member of the ICPAS
Financial Reporting Committee Education Sub-Committee,
gave an interactive and lively presentation about the
fundamentals, key risks and common controls of the
revenue business cycle.
Mr Loh kicked off the seminar by introducing the
Committee of Sponsoring Organizations (COSO) and the
COSO framework which forms the fundamental processes overlooking an entity’s
operations, financial reporting and compliance. To allow the non-accounting trained
participants better appreciate the concept of revenue from an external auditor’s
perspective, he gave a simplified and condensed interpretation of the audit process. An
audit revolves around eight financial statement assertions – accuracy, occurrence,
completeness, cut-off, valuation, classification, rights and obligations, and presentation
and disclosure. An auditor questions, understands and designs audit procedures to
address the assertions on the components of the balance sheet and income statement.
Significantly, errors of fraud could occur in any of these eight assertions.
Uncovering fraud
The potential for management override of controls is the key red flag that indicates the
existence of fraud in a company. Its importance is reflected in the Singapore Standards
of Auditing (SSA) which makes it compulsory that auditors treat fraud arising from
management override of controls as a high risk on all audit engagements. To address
this, auditors are required to plough through journal entries, test accounting estimates
and lookout for unusual transactions. Additionally, auditors should corroborate facts with
personnel from different departments. Mr Loh shared that management’s behaviour,
such as a dominating key management personnel who is overly involved in company
matters or is seldom away from office, could possibly be an indicative signal as well. The
underlying principle is that auditors should practise professional skepticism and ensure
adequate corroborative evidence.
More often than not, fraud is uncovered when someone within the company whistleblows instead of it being detected by auditors. The seminar ended with a discussion on
why this was so. Generally, SSAs do not mandate that auditors uncover fraud as
auditors are required to only provide reasonable assurance on the financial statements,
as opposed to an absolute assurance.