Urgent Medical Devices
Fraud Risk Factors
Based on the risk assessment, the main fraud risk factors that are likely to occur.
- There is a risk associated with the company sales targets. The company has set aggressive targets for sales for the new product line of surgical implants. The sales targets set are characterized by a very high sales volume degree for all the regions in each quarter.
- There is a risk that could lose as a result of the inefficiency of the hired a senior vice president who is mandated with the responsibility of overseeing sales, ensuring efficient delivery, physician training, and customer service (Blay & Thibodeau, n.d.)
- There is also a risk for orders to remain in the company warehouse instead of going to the distributors.
- There is a risk of bad debts when compared to account receivables and unrealistic sales from the management.
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What Could Go Wrong
| Fraud risk factor | Significant accounts (accounts impacted) | Relevant Assertions | What could go wrong (WCGW)? |
| Unrealistic pressure on management to achieve high sales profits The sales have the threat of loss of jobs in the event that the goals are not achieved satisfactorily.
| The accounts that will be affected due to unrealistic pressure are accounts receivable and revenue.
| Occurrence Accuracy Cutoff | 1. As a result of unrealistic pressure, the managers could be forced to record false sales in a bid to achieve the goals that are needed to achieve the anticipated bonus or promotion in the place of work. 2. There is a high possibility that wrong sales could be recorded in order to increase the likelihood of achieving the stipulated sales goals. 3. Sales from previous years could be included in the current year to increase sales goals.
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| Possibility of orders to stay in the warehouse for longer periods than usual rather than being released to the distributor
| Revenue and accounts receivable inventory will be affected.
| Occurrence Existence | 1. Fake sale invoices could be recorded in a bid to inflate sales revenue, although the inventory stays the same. |
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Unrealistic Sale goals from management.
| Unrealistic goals from the management could affect revenue and accounts receivable | Occurrence Classification | Unrealistic goals could result in frustration and the growth of negative emotions amongst the employees, an aspect that could affect their performance. Failure to meet organizational goals (unrealistic) could increase staff turnover and make the environment unhealthy for the employees to perform as expected (Blay & Thibodeau, n.d.)
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- What do you believe is the most significant risk related to the revenue account for
Urgent?
The most significant risk associated with the revenue account is the aggressive approach from the company’s management in a bid to attain unrealistic sales goals.
- Special audit considerations would you propose in response to the significant
risk you identified above?
In order to deal with the identified risk, the auditor should implement special audit considerations to address the risk of the aggressive approach adopted by the company’s management to reach the stipulated sales goals. To begin with, it is important to make appropriate engagement responsibilities by engaging the knowledge, ability, and skills of team members. The management should provide adequate supervision that is most appropriate for the management’s aggressive approach to meet unrealistic goals. While providing supervision, it is necessary to include risks of different misstatements while incorporating different elements of unpredictability and exaggeration used in the selection of sale goals. The auditors should include the assessed risks of a misstatement as a result of fraud and incorporate the element of risks and unpredictability in its auditing procedures.
It is important to perform necessary audit procedures that are related to the company’s assertions disclosures, and accounts that would otherwise be ignored based on the assessment of risk. The timing stipulated for the audit procedures should be varied to avoid the risks of overestimation. The testing items selected should be of lower amounts rather than higher to reduce the risk of overestimation. Those that are outside the customary procedures can also be of importance to reducing the identified risk of unrealistic sale goals. The audit procedures can also be conducted on an unannounced basis while varying the timing, location, and extent of the audit procedures.
While undertaking these procedures is necessary, all activities meant to reduce the identified risk should be executed while evaluating its selection and applying the most significant and appropriate accounting procedures. According to Hoffman & Zimbelman (2009), the auditor should undertake an evaluation of the company’s most significant accounting procedures and principles, especially those that are related to complex transactions and subjective measurements that are indicative of bias and could cause material misstatement of the organizational financial statements.
Data Visualization Tools
Memo
To:
From:
Date:
Subject: Patterns Indicative of Particular Audit Risks
Following the risk assessment procedures and data visualization that is provided in Tableau, it is necessary to identify the patterns that are indicative of audit risks that may affect the company’s productivity. For instance, it is evident that the Urgent has set aggressive sale targets for the new product line of all surgical implants. The targets are characterized by a high volume of sales for all the regions, an aspect that could cause adverse effects on the company’s accounts receivables and revenue. The unrealistic pressure and sales targets should be addressed in that it could facilitate the development of fraudulent activities in the company in a bid to meet the anticipated goals in order to benefit from promotions and bonuses. Wrong sales could also get recorded in a bid to increase the desire to achieve the stipulated sales goals. The company has hired a senior vice president who has been accorded the responsibility of physician training and overseeing the sales in the facility. This risk will affect the company revenue and accounts receivable inventory in that the employees could record false sales for fear of failing to meet the stipulated goals. The risk of bad debts and unrealistic sales will affect the company’s growth potential and hinder progress as a result of diminished motivation among the employees.
References
Blay, A & Thibodeau J. C. (n.d.) Urgent Medical Device, Inc.: A Teaching Case Designed to Integrate Data and Analytics in the Financial Statement Auditing Classroom. Urgent Medical Device.
Hoffman, V. B., & Zimbelman, M. F. (2009). Do strategic reasoning and brainstorming help auditors change their standard audit procedures in response to fraud risk? The Accounting Review, 84(3), 811-837.