Deck 6: Usiness Processes and Internal Risks

Question 1

Identify issues of importance to the auditor in the "human resource management" support process of the value chain.

Answer 1

Human Resource Management: Audit issues related to human resource activities include allocations of direct and indirect labor costs, liabilities associated with compensation or benefits (e.g., pensions, post-retirement benefits, vacation and sick pay, and stock option plans), or estimates of contingent liabilities that may arise from improper employee policies, procedures, or behavior (e.g., sexual harassment or discrimination).

Question 2

Describe the concept of a value chain and its two dimensions.

Answer 2

a. An organization's value chain is a collection of processes designed to carry out the operations and activities of an organization in an effective and controlled manner. The value chain describes how the organization creates value for all stakeholders. There are two dimensions to a value chain: primary processes and support processes.
b. Primary processes are those that are performed to directly create value in the form of a product or service. Acquiring raw materials, assembling a product, and delivering the product to a customer are all considered primary processes, and hence they generate what we call primary transactions in the accounting system.
c. Support processes are those that are performed in order for the organization to function properly but have an indirect effect on the creation of product value. The accounting and personnel departments are examples of support processes.

Question 3

Identify issues of importance to the auditor in the "technology and information management" support process of the value chain.

Answer 3

Technology and Information Management: Audit issues that may arise from technology development mainly relate to the proper recognition and allocation of costs. Poor system transitions, lack of backups, and unauthorized access to programs and data relate to the auditor's responsibility to assess going concern risk.

Question 4

What accounting and audit issues may arise in the "services" primary process of the value chain for organizations that manufacture, distribute, or sell tangible products?

Question 5

Consider the value chain for an accounting firm. Describe these support activities: Procurement and supply chain management, human resource management, and technology and information management.

Question 6

Which standards are most applicable to motivate the auditor's study of client business processes?

Question 7

Describe the purpose and components of internal threat analysis.

Question 8

What accounting and audit issues may arise in the "marketing and sales" primary process of the value chain for organizations that manufacture, distribute, or sell tangible products?

Question 9

Identify issues of importance to the auditor in the "infrastructure and financial management" support process of the value chain.

Question 10

Describe the nature of accounting estimates.

Question 11

Describe the primary activities in the value chain for an automotive manufacturer.

Question 12

When is a process considered to be audit-sensitive?

Question 13

Once the audit-sensitive processes are identified, what kind of information does the auditor need to gather about each process and what tools can the auditor use to assist in this analysis?

Question 14

What accounting and audit issues may arise in the "operations" primary process of the value chain for organizations that manufacture, distribute, or sell tangible products?

Question 15

Why do accounting estimates present a challenge to the auditor?

Question 16

What accounting and audit issues may arise in the "outbound logistics" primary process of the value chain for organizations that manufacture, distribute, or sell tangible products?

Question 17

What accounting and audit issues may arise in the "inbound logistics" primary process of the value chain for organizations that manufacture, distribute, or sell tangible products?

Question 18

Why is understanding the client's internal business processes important to the auditor's assessment of the client's environment and risk?

Question 19

Identify issues of importance to the auditor in the "procurement and supply chain management" support process of the value chain.

Question 20

Describe each component of a process map.