Auditing2 case analysis Study Example | Topics and Well Written Essays - 500 words

Auditing2 analysis - Case Study Example Therefore for a business to address this issue, it has to put in place control measures that will reduce the number of risks the business is exposed to. This is not a fool proof measure but rather ways of mitigating the extent of loss in case the business suffers. This paper therefore seeks to identify the inherent risks in the case presented, point out internal control weaknesses, the best sampling techniques to use in testing the reasonableness of the various departments. 1. In the case given, the CFO and CEO worked together in the previous company. There is an inherent risk that they are incompetent in discharging their duties and had to leave the company. This is a risk that HFC needs to be aware of and put in place measures to identify and mitigate any loss that may arise due to their incompetence. The order and shipping department has the potential to incur inherent risk whereby the quality of the goods may not meet the required standards to satisfy customers. Another risk is in credit approval. Currently, once a customer is approved, they remain credit worthy until the cease doing business. The inherent risk here is that the customer may leave a bad and irrecoverable debt to the company. This clearly is a risk that can be mitigated by introducing an internal control policy to do a background check on customers before approval. The company can also set limits to the amount that a customer can be advanced by the business. 2. An internal weakness simply means the possibility of the internal checks to detect or deter any fraudulent activities either willingly or not willingly. There are several weaknesses in the company such as placing orders over the internet and via phone calls. It poses a threat to loss of stock since this is an asset with high liquidity. With the advancement of technology, there is a risk of receiving fake orders coupled with the weak controls in credit approval, and consequently loosing cash in form of stocks.