I would wish to thank assorted people who have made parts and helped us in doing this study. Without their attempt the success of the study would non hold been possible. We would wish to thank Asia Pacific University College of Technology and Innovation for giving such type of chances to us. and thanking them besides by assisting us to research our new thoughts and larn more about the different organisations. Second I would wish to thank Mr. Megat Abdullah Megat Mahmud in assisting me in coating of the assignment.

Different functions of internal and external hearers.

Internal hearers:
A individual who verifies company’s operations and besides an employee of a company is known as internal hearer. An internal hearer looks at the overall ends of the company and assist them make highly good in a dependable and ethical mode. They evaluate and improve the company’s systems of conformity. control. and hazard appraisal. An internal auditor’s primary map is to measure and better the company’s fundss and accounting processs. The internal hearer may do suggestions on how to break safeguard this information from being accessed by individuals other than necessary personal.

External hearers:
A individual who verifies company’s operations but non an employee of a company is known as external hearer. External hearers are non portion of the organisation. but are engaged by it. and their primary mission is to supply an independent one-year sentiment on the organization’s fiscal statements. Even though they are non portion of the organisation. they play a cardinal function in developing internal control. They provide a statistical analysis on the lucidity and effectivity of the accounting policies put in topographic point by the company. They besides help direction become cognizant of grounds that may impact future audits. Hearers can notice on failings in the accounting records. systems and controls that they review in the audit. They can give advice direction through recommendations in their audit notes or treatments.

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Identify the benefits in organizing an audit commission.
This is a commission which is responsible for supervising fiscal coverage and even all the internal and external audit work of company. The audit committee’s function besides includes the monitoring of accounting policies. and the treatment of hazard direction policies with direction. An audit commission should describe straight to the board of managers and should non describe to the CEO. CFO or other members of top direction. Benefits of organizing an audit commission can be several:

1. It provides the internal operating mechanism compared to describing to the managers who may wish to conceal or amend unfavorable internal audit. 2. Stockholders and public assurance is enhanced in published information as it has been reviewed by an independent commission. 3. Audit commission members play a proactive function working with hearers in making and reexamining an administration broad fraud bar and sensing plan. and guaranting that probes are undertaken when fraud is uncovered.

An audit commission should describe straight to the board of managers and should non describe to the CEO. CFO or other members of top direction

Measure the strengths and failings of MPL’s control environment:

Control Environment:
Control environment is the foundation of all constituents of internal control. Directors must measure the internal control environment in their sections. Control environment chiefly depends on attitudes. actions. policies. values and functions of directions which influence and put the mode of a firm’s twenty-four hours to twenty-four hours activities. However. the control environment factors can be utile in treatment among bureau senior direction and assist find what. where and how betterments can be implemented in the agency’s current control environment. These factors include: a. Integrity and Ethical Valuess:

The entity should guarantee. honest. legal and ethical act. There should besides be codification of behavior adverting how to act during work. non to rip off or steal but if it happens so strong action would be taken.

B. Engagement of Board of Directors or Audit Committee: Top direction should take part or affect in every instance. Frequent meetings and treatments with employees should be held. These meetings can be held with accounting officers. internal hearers and even external hearers.

c. Management Philosophies and Operating Style:
Doctrine of direction can be a nature of concern in accepting hazards. Operating manner can be shown by attitudes and actions toward fiscal coverage which include differences over application of accounting policies.

d. Organisation Structure:
The model in which an administration arranges its lines of authorization and communications. and allocates rights and responsibilities is organizational construction. In this. the functions and power is divided among direction. Everyone in direction should inform to their immediate senior degree of direction so that the construction will work consequently.

e. Assignment of Authority and Responsibility:
Responsibility and authorization should be given to those who are capable. in regard to data processing and accounting maps with the needed accomplishment degrees relative to the size of entity and nature and trouble of activities and system.

f. Human Resource Policies and Practices:
This contains the policies and processs for engaging. preparation. promoting and counterbalancing employees ( rigorous action against rip offing. codification of behavior ) .

Strengths of MPL’s Control Environment:
* Large company which have 5 mills that operate throughout Malaysia which means that any new rival will non happen it easier to vie and last against MPL. * Corporate direction has high unity which tells that the employees in the direction are honest and dependable. * MPL has a policy of engaging competent people so all the employees are experienced and skilled. * MPL besides have a codification of behavior which says that regulations and ordinances are being set for them.

Failings of MPL’s Control Environment:
* Board of Directors and Audit Committee are non really active which gives chances to the employees to perpetrate fraud. * Small monitoring of conformity by employees.
* Employee’s compensation bundle depends extremely on their public presentation. so if the public presentation of company is low than they could perpetrate fraud as they are non acquiring adequate sum for their disbursals. * Company does non hold an internal audit section. which means that they can non pull off the finance accounting and there can be an easy fraud done. * Controls over stock list are weak which can easy take to use of assets. * Poor observation from hearers.

* No coverage or informing to direction if any alterations or rectification of mistakes been made which means hapless control among direction.

Discuss the factors in MPL control environment that have led to and facilitated Mike’s use of stock list.

Manipulation of histories means falsifying figures in books of histories with the object of describing net income more or less than what really it is. or for doing balance sheet figures to look more or less attractive than what really they are. The factors in MPL control environment that have led to and facilitated Mike’s use of stock list can be as follows:

a. Human Resource Policies:
The compensation packages extremely depends on public presentation of a company which means that if the income is more than the employees are acquiring high compensation. if less than they will acquire low. same was the instance with Mike who was a general director. The HR section might hold think that due to this policy. employees will set more attempt but beside this they can besides pull strings to derive more compensation as general director did.

B. Engagement of Board of Directors or Audit commissions: The deficiency of affecting of Board of Directors or Audit commission has lead to this use of stock list. If they are active and do meetings with employees or even personal meetings with directors than these types of fraud won’t be easy to perpetrate. As audit commission is non active so the internal hearers were besides moving the same by non being active during the numeration of stock lists.

c. Organisation Structure:
The control should be good in administration construction but in Marcelle Private Ltd. we can see that the hearers were easy convinced about the skip of stock lists and even didn’t informed about these mistake of skip to their top direction. The regulation should be that if any alterations are to be made the top direction should be involved in it.

Analyse the audit processs which the hearers seemingly did non follow that could hold detected Mike’s deceitful addition of stock list.

The audit processs include the followers:

a. Maintain professional incredulity
Professional incredulity is an attitude that includes a inquiring head and a critical appraisal of audit grounds that a material misstatement can be due to fraud. Therefore. the hearer must be after and near their audit with a mentality that recognizes the possibility of stuff misstatements due to fraud. Professional incredulity must be adopted in all audits irrespective of past experience of management’s honestness and unity.

B. Hold treatments among the battle squad
To properly carry through their duty for observing fraud. hearers should now keep treatments within the audit squad. The treatments should include brainstorming and an exchange of thoughts about how and where the entity’s fiscal statements might be susceptible ( at hazard ) to material misstatement due to fraud. including how fraud might happen.

c. Conduct hazard appraisal processs and related activities In order to place the hazards of stuff misstatement due to fraud. the hearer shall execute the undermentioned processs:

d. Making inquires of direction and others within the entity: One of the chief beginnings for the designation of fraud hazard factors. and obtaining cognition about any existent. suspected or alleged fraud is to do questions of direction and others within the entity. These questions can be done as an individual’s background. household. clearance of condemnable study in in-migration. etc.

e. Performing Analytic processs:
Analytic processs represent one of the most of import techniques in foregrounding hazards of stuff misstatement due to fraud. When utilizing analytical processs in observing possible hazards of stuff misstatement due to fraud. the hearer needs to be watchful to any unexpected or unusual relationships. The more common histories manipulated when perpetrating fraud are revenue-related 1s ( e. g. stock list and receivables ) . The application of analytical processs to stock often involves ciphering such ratios as gross net income per centums. stock turnover and stock to entire current assets. Abnormal alterations in gross net income per centum should be investigated.

f. Evaluating fraud hazard factors:
Fraud hazard factors are based on three conditions that are by and large present when fraud exists: * Incentives/pressures – direction or other employees may hold an inducement or be under force per unit area to perpetrate fraud ( e. g. hapless hard currency place ; high life style ensuing in populating beyond one’s agencies ) * Opportunities – fortunes provide chances for direction or employees to perpetrate fraud ( e. g. uneffective board of manager and the ability of direction to overrule controls ; hapless internal control ) * Attitudes/Rationalizations – an attitude. character or set of ethical values exists that allows direction or employees to perpetrate a dishonest act ( e. g. the demand to protect the stockholders and maintain the stock monetary value high ; for the good of the company ; the entity owes it to me ) .

In measuring fraud hazard factors. the auditor’s duty now includes sing inducements and chances that could potentially take to material misstatements. The rating of the fraud hazard factors besides involves consideration of the effectivity of internal control. and the size. complexness. and ownership constructions of the entity.

g. Monitoring:
Monitoring is a procedure to measure the effectivity of internal control public presentation over clip. It ensures that internal control continues to run efficaciously. It is fundamentally a direction procedure using section staff employees to place: * Aims

* Associated hazards
* betterment control

These are the audit processs which the hearers seemingly may non follow that could hold detected Mike’s deceitful addition of stock list. These should be controlled by the hearers if they want to forestall from or observe the fraud.

The deduction to an hearer. whose failure in observing stuff fraud as described here.

There are several grounds which lead to the failure in detection of fraud and stress in committing of fraud. In this instance. hearers in a company deficiency on certain countries due to which there was a failure in observing frauds. The hearers in MPL company lacks in monitoring. the board of managers and hearers should put a program to supervise their employees particularly during the computation of assets as there could be a opportunity of acquiring chances by employees. They must be on a regular basis in contact with the top degree direction and inform of any alterations made as the determinations of 100s of 1000s should non be taken easy. Besides this. company should hold their ain internal control section through which they can supervise the state of affairss in day-to-day footing.

Areas of concern which the hearers should take up with the client’s audit commission. if one is formed in the hereafter.

Audit Committee:

Audit commission is an independent organic structure which answerable straight to Board of Governors. They build and maintain communicating with the company’s head finance officer ( CFO ) and the accountant. They besides have authorization to get down or get down superior look intoing if they determine or suspect any fraud. Their map is to implement and back up the inadvertence map of Board of Directors. Audit commission is a subcommittee of the Board of Directors which is non answerable and responsible for any other section or degree of direction of the company. They merely have to response and reply to Board of Governors.

An audit commission of a company has following duties:
* Oversing the fiscal coverage.
* Oversing the revelation procedure.
* Oversing the public presentation of external hearers.
* Monitoring the internal control procedure.
* Discoursing hazard direction policies with the direction.
* Oversing internal hearers.

Before the audit commission is formed in the hereafter. they have following demands: * Each member of an audit commission must be a member of the Board of Directors. * The audit commission must preapproved all audit and non audit service provided by its hearer. * The audit commission must set up processs sing accounting. internal control and scrutinizing. * Each audit commission member must hold the authorization to prosecute independent support or other advisers. as it determines necessary to transport out responsibilities.

Recommendation to an audit commission:

As I recommend. audit commission of MPL should be active and supervise the internal control of a company. They should supervise and detect the control environment in order to cognize the degree of authorization and work done by employees of MPL. As the fraud taken topographic point due to the deficiency of supervising stock list. audit commission should learn and develop their hearers so that following clip this misstatement of study due to use of stock list do non happen. Besides this. there is no coverage or informing to direction if any alterations or rectification of mistakes has been made which means hapless control among direction so hearers should be told and ordered to inform the direction or an audit commission if any alterations had been made.


* Blurtit. com ( n. d. ) What Is The Difference Between External And Internal Auditor? – Blurtit. [ on-line ] Available at: hypertext transfer protocol: //www. blurtit. com/q573269. hypertext markup language [ Accessed: 14 Jun 2012 ] .

* Investopedia. com ( 2012 ) Audit Committee Definition | Investopedia. [ on-line ] Available at: hypertext transfer protocol: //www. investopedia. com/terms/a/audit-committee. asp # axzz1vlrwpp2o [ Accessed: 14 Jun 2012 ] .

* MouMou ( 2012 ) Advantages and disadvantages of holding an audit commission. . [ on-line ] Available at: hypertext transfer protocol: //studentyard. net/ ? p=846 [ Accessed: 14 Jun 2012 ] .

* Putra ( 2008 ) Difference and Similarities of Internal Auditor Vs. External Auditor | Accounting-Financial-Tax. com. [ on-line ] Available at: hypertext transfer protocol: //accounting-financial-tax. com/2008/08/differences-and-similarities-of-internal-auditor-v-external-auditor/ [ Accessed: 14 Jun 2012 ] .

* Unknown. ( 2012 ) Control Environment. [ on-line ] Available at: hypertext transfer protocol: //www. fso. Arizona. edu/internalcontrol/Control_Environment. pdf [ Accessed: 14 Jun 2012 ] .

* Unknown. ( 2012 ) Fraud. [ on-line ] Available at: hypertext transfer protocol: //www2. accaglobal. com/pubs/hongkong/students/newsupdate/archive/2011/30/fraud. pdf [ Accessed: 14 Jun 2012 ] .

* Book rubric: auditing and confidence services. A systematic attack. 6th edition. Writers: William F. Messier. Jr. Professor Steven M. Glover. Professor Douglas F. Prawitt


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