Reporting Relationship on Internal Auditors †MyAssignmenthelp.com

Question: Discuss about the Reporting Relationship on Internal Auditors. Answer: Introduction: Inherent risks are those that are present in the system due to the features of the business and the presence of various forms of regulations. It is difficult to control such risks by the tools of internal control. This risk is bound to be present in the business because it is inherent in nature irrespective of the level of control or the type of business. The business cannot be stationary rather it expands and captures a new market. In the wake of diversification, the business gets vulnerable to various risks that are inherent and cannot be eliminated (Geoffrey et. al, 2016). A business does not operate in isolation rather it operates under two sets of circumstances. The assessment of the business contains external and environmental factors, misinterpretations that have happened and other ethical flouts that need immense estimates of the management. It needs to be noted that there are certain risks that are traced at the very beginning. It rests upon the course of action of the compa ny and the presence of an evaluation tool (Vause, 2009). The process of evaluation considers the micro and macro factor that needs to be considered from the time of initiation until the point of time the business generates revenues, taxes are paid etc. Hence, the internal control at every stage is present that helps in tracing of the flaws and the deviations are controlled (Gilbert terry, 2005). There can be a certain situation that the mistake or fraud is not spotted at an early stage till it transforms into a grave situation. However, it is the duty of the auditor to identify the deficiencies and provide an adequate remedy. If the company fails to take steps in this regard, the level of inherent risk will surge out of control. There may be certain mistakes that are left untouched by the accounts department and this enhances the level of inherent risks. Therefore, it is of utmost necessity that the company should have an internal and external auditor that will enable to spot the weak area. In the given case, One.Tel suffered a major blow because the management was ignorant of the matter and left to operate on its own further, the accounts department paid no heed to the situation (Douglas et. al, 2015). The terms and conditions were dull, the management was weak and the presence of strong management was missing and the absence of strong auditors led to the decline of One.Tel. Various claims from the managing director and the founder appeared to be false and misleading. When it comes to One.Tel the management was held for gross negligence and even the department of accounts failed to perform the duty as per their responsibilities. This was one of the major faults in the case of One.Tel. This was followed by v arious other negligence such as ineffective due diligence, defective management, faulty procedures and lack of independence of the executives. The disintegration of One.Tel was the accumulation of all such reasons. Moreover, when it was required to implement corrective actions, the board lurked in their attempt (Monem, 2009). Thereby it was altogether difficult to continue the operations. It was even noticed that the value of the plants and machinery is hyped. Plant and machinery were purchased by the company but the purchase of the same needs to be properly ascertained and should be at the discretion of the management. The success of the transaction will be ascertained as per the decision of the management (Schaeffer, 2006). In short, it can be said that various decision such as the purchase of assets, transaction success, the place of purchase, etc needs to be determined by the management that influences the assessment process. It was projected that the company is formidable in nature, however, the entire scenario was different as the risks claimed a higher status (Goodstein, 2011). It became difficult to ascertain the level of risk and when the risk assumed a grave situation the entire happening came to the forefront leading to sharp decline. Inherent risk level It is difficult to tame the inherent risk, however, with proper strategies and controls it can be addressed. It needs to be noted that even the presence of an internal control will not help in reducing the inherent risk as it is present in the system. The inherent risk can only be addressed and a strong audit system leads to a better grasp of the situation. There are various factors that influence such kind of risks (Hoffelder, 2012). The presence of an innumerable network of companies tends to create inherent risk. When the network is vast it tends to enhance the level of risk. This is due to the fact that every company operates to attain a better market share and in the midst of it leads to scarcity of various resources. When it comes to the level of complexity and the consideration of the transactions also paves the way for inherent risks because due to such activities alterations and speculations happen. Moreover, an activity that relates to the prediction of the management is infused with inherent risks as it is left to operate in the situation that is prevailing (Hoffelder, 2012). When management forecast, it needs to be noted that risk element is always residing as the forecast depends on scenarios that are not constant and are subject to change. When it comes to the point of related party transactions it enhances the level of inherent risks. It is due to the fact that the management has a level of familiarity with a particular transaction. It tends to inflate the level of inherent risks. Moreover, when there is a contract in regard to debt, it increases the level of inherent risks (Matthew, 2015). This can be justified by the presence of the situation in the case of One. Tel where immense borrowings were done by the company and no borrowings were done without the presence of a contract. Hence, a contravention of the contract leads to serious default. When it comes to the matter of debt and borrowings there is always an element of inherent risk and there is always a chance of the risk contravention (Wood, 2011). However, if the management solely focuses on the performance then the inherent risk might leave unnoticed. It is, therefore, important that the audit team must be strong to address the inherent risk and the failure of the team can prove to be a problematic scenario. The same is indicated in the case of One.Tel. It is a fact that the inefficiency on the part of the audit team plays a leading role in enhancing the level of inherent risk. Area of going concern When it comes to the concept of going concern it can be said that the company operates with a fact that the business will run for an indefinite period of time. There are many factors such as decision making, transaction, and any other event can affect the smooth operation of the company. Further, every investor is interested in the company with an expectation that the company will run for an indefinite time span (Harrington, 2003). Thereby, it is of utmost necessity that small concern must be paid heed else the desire of the stakeholders will be shattered. With this, it becomes essential that any activity that has the tendency to oppose the going concern must be segregated into strong, medium and low. Moreover, the management must pay strong concern to the matter that affects the going concern principle. It needs to be noted that the identification of any financial crisis may be a tough call but the management and the auditor must possess skills that will help in neutralizing the sit uation and limit the impact (Manoharan, 2011). The going concern of the company can be affected due to various factors such as the contracts of the creditors, failure to discharge the obligations, the deficiency on the part of the company to meet with the rivalry, huge losses, and indication that the credit structure of the company is weak. Hence, going by the discussion and the type of organization it is imperative for the management to classify such risks so that a strong control can be established by the management on the same (Kruger, 2015). However, there are innumerable that goes beyond the capacity of the management. The entry of new rivals into the market, the act of God is some of the apt examples that affect the going concern and are even beyond the control of the management. Therefore, as per the discussion, it can be ascertained that the company must establish a strong framework that will help in chalking out strategies and meet any adverse situation with precision. It strikes the presence of a strong risk management team that will help in deciding the serious issues. Going by the discussion it can be commented that categorizing the are of going concern into low, medium and high is of utmost necessity to project the ease or inadequate the system is (Monem, 2009). Moreover, it will portray the rapidity with which a decision can be taken to safeguard a company. Conclusion Going by the case study of One.Tel can be commented that the ability of the business to perform depends on the strategic planning. It plays a leading role in the management of the overall circumstances. The inherent risk might not be in the control of the managers and the auditors, however, an appropriate framework leads to a better grasp of the situation. It is imperative for the management to set standards through which adaptation to change in the external scenario can be measured. Hence, it is essentially required that the auditors must be highly competent to counter the situation and handle with top priority as a mismatch can lead to disturbance in the going concern principle. References Douglas M.B, Todd, D.F Hermanson, D.R 2015, The Effects of Internal Audit Report Type and Reporting Relationship on Internal Auditors' Risk, Judgments.Accounting Horizons, vol. 29, no. 3, pp. 695-718. Geoffrey D. B,Joleen K,K. Kelli SDavid A. W 2016, Attracting Applicants for In-House and Outsourced Internal Audit Positions: Views from External Auditors, Accounting Horizons, vol. 30, no. 1, pp. 143-156. Gilbert, W. J Terry J. 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