Introduction
Digital shops have become extremely popular now, making these platforms potentially profitable, but, like any other business, it requires careful planning and risk assessment. Simons Inc. (SIM) is one of the leading online stores in the United States that offers customers office supplies, electronics, tools, appliances, and other items. This company’s supply chain and financing are managed from its headquarters in Detroit, Michigan. Since weak auditing and insufficient financial strength may bring operational damage to an organization, evaluation and design of controls and processes are essential (Wang et al. 1). Therefore, SIM’s engagement team conducted an assessment of risks related to material misstatement. The three identified risks are not documenting shipped orders as revenue, fictitious sales, and incorrect pricing (Simons Handout #1 1-3). The engagement team’s evaluation allowed to identify that the Control’s measures to mitigate these risks were effective.
Risk 1
Assessment of the Evaluation of the Design of Each Control
The first risk was that the shipped orders might not be registered and counted as revenue. Although it is an insignificant danger for the company, it still should be addressed. The Control responded that all sales are registered, and invoices are automatically generated in its SELLANDSHIP system (Simons Handout #1 1). Para. 5 states that items are not shipped until the order is confirmed by the system (Simons Handout #1 1). The examination of the design of each Control was appropriate since the risk of product misstatement or incomplete recording was identified.
Assessment of the Risk Associated with Each Control
The risk assessment was adequate because all the relevant documentation was thoroughly examined. It showed that the associated risks were not higher in this particular case. Moreover, para. 10 states that the system’s design enables automatic invoicing and prevents errors in registration and transactions (Simons Handout #1 1).
Interim Planned Procedures to Test the Operating Effectiveness of Each Control
The engagement team’s interim testing, which incorporated checking the general IT controls and standard sample testing of low-risk program changes, was appropriate because the central operating platform’s functionality should be assessed regularly.
Roll-Forward Planned Procedures to Test the Operating Effectiveness of Each Control
The roll-forward planned procedures to determine events that may impact operation were not essential since this particular risk was insignificant.
Risk 2
Assessment of the Evaluation of the Design of Each Control
The second potential danger was that the revenue might be recorded for unshipped orders, resulting in fictitious sales and material misstatements. The assessment demonstrated that the control of this risk was done correctly. The system is designed the way that orders, invoices, and shipping notes are checked daily; however, this process is not automated (Simons Handout #1 2, para. 5). The lack of automation increases the chances of accidental errors; thus, the engagement team’s evaluation of the design was appropriate.
Assessment of the Risk Associated with Each Control
The assessment showed that the risk associated with the Control was higher. It was relevant, in this case, since this task was directly linked to the Control’s duties to monitor the order registration process and shipping of items.
Interim Planned Procedures to Test the Operating Effectiveness of Each Control
The interim testing included report checking for thirty days randomly selected over the year. The team evaluated the firm’s documentation for unusual transactions, invoices, and the warehouse director’s measures taken in response to these violations (Simons Handout #1 2, para. 12). Notably, selecting random periods for checking was a proper decision since it creates an objective overview of the Control’s work at different times.
Roll-Forward Planned Procedures to Test the Operating Effectiveness of Each Control
It was wise to eliminate the roll-forward procedures to test the operating effectiveness of the Control, in this case, because the interval evaluation would be performed continuously throughout the year.
Risk 3
Assessment of the Evaluation of the Design of Each Control
The third risk was that the shipped orders might be documented inaccurately, leading to the erroneous pricing or incorrect number of items sent to clients. The engagement team’s assessment of the design was appropriate because it stated that the risk of material misstatement is low since the Control team evaluates reports each month (Simons Handout #1 3, para. 5).
Assessment of the Risk Associated with Each Control
It was determined that the risk associated was not higher, which is an appropriate assessment since the Control would provide a monthly documentation package to examine the budget and revenue. The engagement team identified that the monitoring process for this risk is accurate and precise.
Interim Planned Procedures to Test the Operating Effectiveness of Each Control
Although this particular threat was not critically high, the interim tests and roll-forward procedures were necessary. These processes were supposed to incorporate a detailed explanation of steps, data inspection, appraising all methods, and investigation of every implemented change (Simons Handout #1 3, para. 12). Furthermore, the engagement team suggested organizing meetings to discuss if monthly assessments were performed correctly.
Roll-Forward Planned Procedures to Test the Operating Effectiveness of Each Control
The additional roll-forward procedure during the first month of every quarter was an essential supplement since it would help to confirm information accuracy.
Conclusion
In summary, Simons’ engagement team conducted a risk assessment to identify issues that might affect the company’s revenue. The three risks were not completing order registration, fictitious sales, and shipping incorrect quantities according to unapproved prices. The first and third issues were not significant, while the second was crucial because recording shipments that did not occur damaged the firm’s actual profit. Although the last two processes were not automated, the engagement team confirmed that the data presented by the Control was accurate because the experienced workers regularly perform the documentation check. Lastly, the interim and roll-forward testing of operating effectiveness in each of the three cases was appropriate. The former included a thorough examination of the completion of tasks and system performance, and the latter was introduced only when necessary, eliminating wasteful processes.
Work Cited
Wang, Keyu, et al. “Supply Chain Financial Risk Evaluation of Small-and Medium-Sized Enterprises Under Smart City.” Journal of Advanced Transportation, 2020, pp. 1-14.