Chapter 2 - Business Processess Flashcards
It is a set of discrete and definable activity areas, such as treasury, production, payroll, etc.
Organization
One of the shortcomings of the functional approach
It often fails to identify very significant activities that naturally span departments.
One way of avoiding loose ends or points of onward interconnection to consider
To consider the business operations as a series of “cradle to grave” processes or cycles, where a chain of interrelated events or activities is plotted form the origin to the conclusion.
This type of subdivision is generally geared to the fundamental nature of the business or operations of the organization and tends to lend a natural priority to those more significant areas of activity.
Separate the “productive” or commercial aspects of the business
Two apparent advantages of using this “departmental” or “functional” basis for defining audit reviews:
- The area under review is clearly bounded, and
- reporting lines to responsible management are clear-cut.
It is unlikely that any one department, system or activity will operate in complete isolation, but each will need to interact with other data and systems in order to be fully effective.
True
Factors that influence the way functions are mapped and interconnected across an organization:
best practice
sector-specific practice
requirements of legislation and regulation
Ways that an organization can be divided up
- Functional basis
- Processes basis/ Business process Method
Main benefit of Business Process Method
It should encompass all the relevant issues and aim to provide reassurance to management on the effectiveness of the internal control measures in place across the whole process.
Down side or disadvantage of Business Process method
- Require auditors to plan carefully
- Ensure that the fieldwork is adequately coordinated -> initially identify and consider all the risks and control issues
- Span a number of organizationally separate areas
All of which have implications for the general manageability of the audit review project
Control Self Assessment (CSA) provides a lesser level of objective assurance compared to the traditional internal audit approach.
True
It is a workable alternative to the traditional internal audit approach
Control Self Assessment (CSA)
Reasons for Process Weaknesses
- Formal, laid-down procedures tend not to be so thoroughly defined to address requirements for coordination between sections of the business
- Control is weaker between sections than within sections
- An internal auditing function should have unrestricted rights of access and can follow an operation wherever it goes
- Organization structure is always a subjective and often an evolutionary compromise and could have been done differently
Categorization in a functionally-oriented approach
Management and administration
Financial and Accounting
Personnel and Human Relations
Procurement
Stock and Materials handling
Production/Manufacturing
Marketing and Sales
After sales support
Research and Development
Information Technology
In reality, an internal audit activity is likely to have an audit universe where some of the potential audit engagements are of subjects which correspond to the organizational parts of the business while others are of business process which cross over the structural frontiers.
Hybrid Audit Universe
Challenge of Hybrid Audit Universe
“Double Auditing” –> internal audit activity addresses the same issues as part of the process audit and also as part of a functional audit.
It focuses on a number of related economic events that occur within an organization that in turn may generate transactions and interactions with systems.
“Business Cycle” Approach
Prime aim of “Business cycle” Approach
Take account of the lifecycle of a series of events within the business operations and review them in their entirety across all functional and organizational boundaries.
Six Ubiquitous Processes
- The Revenue Process
- The Expenditure Process
- The Production/Conversion Process
- The Treasury Process
- The Financial Reporting Process
- The Corporate Framework Process
Related to those activities that exchange the organisation’s products and services
for cash, and therefore include (inter alia) the following elements:
* credit granting;
* processing orders;
* delivery and shipping;
* billing to customers;
* maintaining accurate and reliable inventory records;
* the activities associated with accounts receivable;
* bad debt (including pursuing debtors and writing off balances);
* reflecting the related transactions correctly in the accounting systems.
The Revenue Process
Those activities/systems that acquire goods, services, labour and property; pay for them; and classify, summarise and report what was acquired and what was paid.
For example:
* ensuring that suppliers are stable, reliable and able to provide the appropriate goods/services on time, at the right price and to the required quality;
* the requisitioning of goods, services, corporate assets and labour;
* receiving, securely storing and correctly accounting for goods;
* all the activities associated with accounts payable (e.g. matching orders to suppliers’ invoices and confirming the accuracy of pricing, etc.);
* recruiting and correctly paying staff;
* ensuring that all taxes due are correctly calculated and disbursed;
* ensuring that all the related accounting records are accurate, up-to-date and complete.
The Expenditure Process
It relates to the utilization and management of various resources (inventory stock, labour, etc.) in the process of creating the goods and services to be marketed by the organization.
Conversion
Key Issues of the Production/Conversion Process
Accountability for the movement and usage of resources up to the point of supply which is then with in the revenue cycle.
In this context, the term “conversion” relates to the utilization and management of
various resources (inventory stock, labor, etc.) in the process of creating the goods and services to be marketed by the organization.
The key issues in this process include accountability for the movement and usage of resources up to the point of supply which is then dealt with in the revenue cycle. Conversion cycle activities include product accounting/costing, manufacturing control, and stock management
The Production/Conversion Process
