Risk Assessment and Effective Reporting †Free Samples to Students

Question: Discuss about the Risk Assessment and Effective Reporting. Answer: Introduction In the year 1916, Commonwealth Serum Laboratories (CSL) was established. The main objective of the company is related to vaccination services but during the initial stages, it encountered severe issues that caused massive troubles. However, the hard work of the company allowed it to become effective in the manufacture of antivenom that gained widespread attention. Furthermore, other developments of CSL include the production of tetanus vaccines, polio vaccines, diabetics, etc. All these developments in the field of medicines allowed the company to prosper in the competitive world, thereby assisting it to become a multi-special organization in the development of various medicinal items. Moreover, the largest area of operations of the company is blood plasma derivatives because it is the only organization engaged in the same. In other words, Australia does not have any other company engaged in the same activity. Audit risks are those risks that occur because of incapability on the part of auditors to identify whether the financial statements are free from material misstatements or errors (Messier Emby, 2005). In such a scenario, the auditor will clearly provide an ineffective opinion on the companys financials. Such material misstatements arise because of faulty internal control mechanisms in the organization thereby playing a key role in enhancing the risk levels of a company. Besides, in relation to an auditor, material misstatements are caused due to detection risks wherein the capability of an auditor to identify major issues is inappropriate (Cappelleto, 2010). Such detection risk arises because of the auditors inefficiency and negligence to conduct the audit process. On a whole, the auditor must look at this issue because it may result in dangerous situations. The purpose of the study is to evaluate the audit risks of the company, its significant impact upon the companys affairs, and several processes that can play a key role in verifying the balances of accounts affected by such risks. The company pursues a risk and audit management committee within its framework that allows it to take into account every audit risk prevailing within the organization especially in segments like environment, safety, health, compliance, physical assets, etc. Further, many other committees communicate with this committee so that every key issue is communicated and addressed effectively (Vause, 2009). This clarifies the fact that the company is having proper strategies to ensure that every major issue is being taken into account. Moreover, effective internal control mechanisms are also needed within the company affairs to ensure that market disclosures, infringement of copyright or trademark, insider trading, etc are taken into due consideration (CSL, 2016). However, it must be noted that risks can only be mitigated by these procedures and elimination of the same is not possible. These risks are the inherent risks that exist in an organization even though proper internal control policie s are in place (Hoffelder, 2012). It has been noticed that people have become more vulnerable to diseases and problems with due passage of time. As a result, usage of medicines has grown substantially in the current scenario, thereby enhancing the pharmaceutical industries as a whole. These concerns play a key role in the development of research and development department as pharmaceutical industries are inclined towards expending huge resources on this segment in order to survive in the competitive market (CSL, 2016). On a whole, because of this over reliance on innovative technologies to sustain in the market, it is not feasible to determine whether money and time expended on research and development can prove to be successful for the companies. Effect of the audit risk on companys financials It can be observed from the business risks of the company that they pose a huge threat to its affairs. Besides, it is the moral responsibility of an auditor to utilize his professional capacity and expertise in evaluating the audit process so that risks can be identified and mitigated as a whole. Further, owing to immense amounts of resources expended on the research and development department, it becomes necessary to understand the implication and nature of resources spent and thereafter, classifies them based on their nature (ACCA, 2016). Besides, there may be some expenses that can be written off by the company in the upcoming years and therefore, understanding the nature of such expenses is of significant importance with the help of analytical procedures and substantive processes (Roach, 2010). In addition to this, termination of patents also poses a huge threat to the company because when such patents are expired, it is not assured whether these may be renewed or not. Further, the company expends huge resources for the same expired patent in order to assure that it is retained. Due to this concern, there is a risk of material misstatement in the companys financials (Fazal, 2013). Furthermore, intellectual property rights also play a key role in this regard because there are various companies wherein more than half of their incomes are derived from only five particular medicines. Besides, generic medicines also pose additional threats in this regard and therefore, any kind of research that is intended for the same must be carefully evaluated and conducted (Hoffelder, 2012). Another area of audit risk is to differentiate research from development because both these things are separate aspects. The reason behind this can be attributed to the fact that companies expend huge fu nds on the development and lesser resources on research activities. Hence, the auditor must effectively verify this classification of expense because these are covered under the audit risks, thereby spoiling the entire audit process (Gilbert et.al, 2005). In companies wherein more than twenty percent of entire income is expended on such RD affairs, they also consider alternative options. In simple words, if patents are terminated and there is pressure for enhancing innovation measures, there remains no scope for in-house research facilities. Moreover, many companies are keen to take into account options such as collaborations, acquisition, merger, etc so that the research expenses are minimized, thereby playing a key role in enhancing the positive outcomes (Fazal, 2013). Therefore, effective treatment of these admixed expenses betwixt one or more companies pose a threat, thereby becoming one of the major challenges. In addition to these, RD affairs are also sometimes outsourced, thereby creating a scenario wherein the accounts of third parties must also have to be taken care after. Further, there may be a related party transaction in relation to this segment that may be concealed under the disguise of outsourcing affairs and thus, mus t be highly taken into account so that it does not become a major issue (Heeler, 2009). Nevertheless, it may not be mandatory that RD affairs be only intended towards innovation measures. This is because such RD possesses varied roles in different companies. Moreover, in relation to pharmaceutical organizations, it must be noted that they have started providing distinct services in order to ensure that their feasibility of growth is more and risk of loss of patent is minimal. This is because the attraction of new customers is the need of the hour in such increased competition in the market and RD can prove to be of immense benefit in this regard. It is therefore required that any expenses that are made for such concerns must be adequately and efficiently classified especially after determining the nature of such expenses. Nevertheless, these can easily become the key areas of material misstatements in the financial statement of a company. In relation to CSL, it can be seen that the company intends to enhance its research base and for such purpose, it endeavors to compet e for collaborations so that it can enhance its revenues as a whole. Audit process to verify balances of account In relation to financial controls, proper verification measures must be installed so that reasons behind any variations in the pricing structure can be determined. This verification may play a key role for the company to sustain its affairs in a way that can fetch better outcomes. Account balances that must be scrutinized by the company are as under: In relation to contingent liabilities, the cost of RD that may fetch negative outcomes must be disclosed. Moreover, audit processes include a collection of ample evidence in order to ensure the prevalence of contingent liabilities. Hence, if such prevalence can be proved, it can result in better outcomes. The accounting measures for the recognition of revenue must be carefully evaluated so that it can be ascertained whether it aligns with the medicines for which the company owns different patents. Due to the maximum time consumed for the purposes of research, the streams of revenue may be deferred. Therefore, effective disclosure policies must be in place so that corrective actions can be implemented. The key intention behind the acquisition of the company must be carefully evaluated and the audit processes must also ensure that there is a fair measurement of the price of acquisition offered by the company. Some of the companys expenses incurred in the past year may prove to be futile and therefore, they may not fetch positive outcomes. Furthermore, if such expenses become liabilities, adequate provisioning must be duly implemented. Besides, the audit processes must ensure proper disclosure strategies and fair measurement of the accounts (Manoharan, 2011). Therefore, it can be witnessed that various account balances have been affected because of the RD expenses, thereby necessitating verification from all perspectives. Even though the company assures premium quality goods, it is feasible that few medicines respond differently on different persons. Therefore, it can be said that the result may be either negative or positive or both. In grave situations, it can also result in the death of a person, thereby generating possibilities of legal cases against the company (Livne, 2015). Besides, encountering such legal battles necessitate an immense amount of resources that may result in a huge financial loss. Therefore, such litigation poses a threat to the company as an audit risk because it may become impossible for the auditor to anticipate a number of resources spent in the past years. Effect of such risk on the companys financials In Australia, CSL is the only producer of blood items and based on the various records, many scandals have occurred in relation to contaminated blood that may result in the generation of infectious diseases. This is the reason why the company has prepared many cases as well. Besides, in 1996, the company accepted that it had admixed blood from international zones with that of the Australian blood so that rapid distribution can be undertaken. However, this backfired against the company as its share price declined (CSL, 2016). Nevertheless, the expenses incurred by the company are depicted in its income statement but additional costs must be disclosed as contingent liabilities. Moreover, in the case of losses, provisions must be duly framed (Christensen, 2011). The major risk of material misstatement present here is that the auditor may offer an ineffective judgement based on such balances of accounts. The expectation of the auditor of the outcome of such case may also be distinct from the reality, thereby resulting in a material misstatement. Therefore, in order to encounter such risk, it must be noted that an auditor must attain an expert advice from the management so that the list of outstanding litigation cases can be analyzed (ACCA, 2016). Besides, the solicitors and legal advisors may also authenticate the cases from the company. In addition to all this, the penalty amount involved is also a major issue because material misstatement may happen there as well. This is because the company may encounter a liability to expend a massive amount that may not be expected by it. Therefore, the auditor must safeguard such risks by taking into account similar cases so that the accurate amount in such cases can be known and thereafter, decisions can be taken (ACCA, 2016). Therefore, the financial statements of the company may suddenly appear to depict bigger liabilities in the form of various litigation cases, and the auditor may effectively meet this by the implementation of proper audit processes. Audit procedure to verify account balances CSL was accused for providing infected blood of Hepatitis C blood. This indicates that the company suffered from the lack of internal control mechanism and the testing procedure was ineffective in nature. The audit procedure should provide that the testing must be of high quality with proper check and must vouch for surprise checks and audits. Normal and Abnormal Loss The accounts indicates the balances for the blood quantity or other medicines that were contaminated or have become sub-standard for utility. The auditor needs to ascertain the account to evaluate the level normal, as well as abnormal losses and the variations in the levels needs to be ascertained as it provides a notion of the unfair practices adopted by the company to have a hold for holding the market share (KMPG, 2010). Penalties The payment of penalties in the past, the reason for such penalties and the re-occurrence possibility of such cases in the present year or such event happening after the date of balance sheet should come into the procedure of the audit. Such verification will led to sufficient check that needs to be undertaken by the auditor (KMPG, 2010). Grievances and claims settled the grievances of the customers must be audited to ascertain the status of the complaints that is unresolved and by doing this, the auditor must provide an opinion about the liabilities that is potential (KMPG, 2010). The amount that is paid towards the claim must be settled and must be audited to frame an opinion about the future amount that is needed to be paid by the company in such similar situations. The amount paid to various parties under the Legal Expense head needs to be audited in an in-depth manner because every such amount leads to a vital case. This will provide a better explanation about the various expenses that pertains to the organization. Hence, there are some accounts that are needed by to be verified by the auditor. In contrast to this, the auditor must ascertain the possibility of complaints for the similar issues by various parties. Apart from auditing the case, the auditor should ensure whether the testing is proper and internal control is enhanced so as to lessen such issues that are repetitive in nature (Gay Simnet, 2015). Conclusion With the due passage of time, there has been a tremendous advancement in technology, pharmaceutical companies are exposed to litigations and other related risks that pertains to health. The elimination of audit risk is a complete effort by the management and the auditor and needs the coordinated effort of both. The audit and risk committee must perform in tune to the matter raised by the internal and external auditor that adheres to the internal control and the action needed to be taken for the major issues. When it comes to pharmaceuticals, strong internal control mechanism leads to reliability and establishment of a proper risk mitigation policy of CSL has ensured it as a trusted brand. 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