RoMM Overall FS Level

Question 1

RoMM Overall Level Acronym

Answer 1

GFICE New Group IT

Question 2

Fraud

GFIC2E New Group IT

Answer 2

1. Fraud – “There is management incentive to manipulate financial results due to:
   • Financial pressure
   • Management owns shares in the business
   • Management Bonuses/remuneration based on performance
   • People looking at financials (bank for additional funding, listing JSE, buying company)
   • Lack of management integrity as evidenced by… [corporate governance concerns]
   • Listed company (to appear more favourable to investors)
   • Going concern issues (to show improved financial position)
   • Sale of managers shares contingent on profits/performance
   • CEO and CFO same person allows for easier manipulation

Therefore the above shows that there is incentive for management to override controls (CR)

Question 3

Error

GFIC2E New Group IT

Answer 3

• Inexperienced/incompetent accounting staff e.g. high staff turnover (Link CR)
• Reliance on IT systems
• Tight audit deadline means staff may make mistakes under pressure
• Dependence on Outsourcing

Question 4

IFRS is complex

GFIC2E New Group IT

Answer 4

3. IFRS is complex, thus there is a risk of error due to misapplication of:
   • IFRS 15 is new and complex, thus there may be issues with application
   • IFRS 3 Business combinations …
   • Associate = equity accounting complex
   • [list the IFRS standards and explain why it is hard]

Question 5

Going concern

GFIC2E New Group IT

Answer 5

4. Going Concern – There is a risk that the going concern assumption is inappropriate, shown by:
   • Losses/ decrease in profits
   • Cash flow issues/ liquidity  indicator of impairment
   • Loss of key management/customer/supplier
   • Build up of inventory
   • Competitive market
   • Bad economic conditions
   This is an indication of impairment.

Question 6

Control Risk

GFIC2E New Group IT

Answer 6

5. Control Risk:
   • Controls may not be uniformly applied across multiple locations
   • High volume transactions – risk controls cant cope
   • Accounting staff may not be competent/have the resources to perform control activities
   • Lack of management integrity thus risk of management override
   • Bad control environment
   • CFO/CEO does not have reasonable qualification for position thus cannot oversee control environment effectively
   • Lack of appropriate internal controls, evidenced by: [weaknesses in internal control e.g. no internal audit function, deficiencies, managements attitude, lack of segregation of duties]

Question 7

New Client

GFIC2E New Group IT

Answer 7

6. New client: Risk that O/B audited by previous auditor are misstated

Question 8

Group Accounting

GFIC2E New Group IT

Answer 8

7. Group Accounting – “Risk that on consolidation:”
   • Intercompany transactions and balances are not eliminated
   • There may be inappropriate disclosure of related party transactions
   • Risk of error due to the complexity of applying consolidation
   • Incorrect translation of foreign operations
   • Risk of non-compliance with foreign exchange regulations from foreign operations

Question 9

Risk resulting for IT operations

GFIC2E New Group IT

Answer 9

8. Risk resulting for IT operations (highly computerised environment):
   • Unauthorised access causing corruption of data
   • Unauthorised amendment of data stored in cloud/master file
   • Loss of data stored in cloud/master file, resulting in incomplete financial records