Nanyang Technological University Nanyang Business School AC2103 Risk Management, Control and Ethics Semester 2, 2012-2013 Seminar

2.2 Objective Setting Learning Objectives Appreciate objective setting as a precondition to risk identification and assessment. Appreciate the linkages of an organizations mission with its strategic and related objectives, risk appetite and risk tolerance. Understand the management assertions made in the financial statements. Required Readings CERM 3 TPGS Ch 2 Charting a Companys Direction: Vision and Mission, Objectives, and Strategy Excerpt of SSA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment (Singapore Standard on Auditing) (as attached) Further Reading COSO 2 Understanding and Communicating Risk Appetite Seminar Discussion 1. Regional budget airlines such as Jetstar Asia and Tiger Airways have become increasingly popular in recent years. (i) Develop a mission statement appropriate for a budget airline and identify four critical strategic objectives of a budget airline. (ii) For each of the four strategic objectives identified, develop appropriate: a) Strategies; b) Related Objectives (Operations, Reporting and Compliance), where applicable; c) Risk Appetite; and d) Risk Tolerance Levels. 2. Discuss the differences between the following pairs of management assertions: i) Occurrence and Existence; ii) Accuracy and Valuation and Allocation.

3. AA205 [AC2103] 09-10 Semester 2, Exams Question 4 (iv) (8 marks) For the cutoff assertion relating to inventory purchase transactions, evaluate whether the risk is always higher with delayed rather than premature recording. Note: Assume the company uses the periodic system to account for its inventory.

Excerpt of SSA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment (Singapore Standard on Auditing) The Use of Assertions A110. In representing that the financial statements are in accordance with the applicable financial reporting framework, management implicitly or explicitly makes assertions regarding the recognition, measurement, presentation and disclosure of the various elements of financial statements and related disclosures. A111. Assertions used by the auditor to consider the different types of potential misstatements that may occur fall into the following three categories and may take the following forms: (a) Assertions about classes of transactions and events for the period under audit: (i) Occurrencetransactions and events that have been recorded have occurred and pertain to the entity. Completenessall transactions and events that should have been recorded have been recorded. Accuracyamounts and other data relating to recorded transactions and events have been recorded appropriately. Cutofftransactions and events have been recorded in the correct accounting period. Classificationtransactions and events have been recorded in the proper accounts.

(ii)

(iii)

(iv)

(v)

(b)

Assertions about account balances at the period end: (i) (ii) Existenceassets, liabilities, and equity interests exist. Rights and obligationsthe entity holds or controls the rights to assets, and liabilities are the obligations of the entity. Completenessall assets, liabilities and equity interests that should have been recorded have been recorded. Valuation and allocationassets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.

(iii)

(iv)

(c)

Assertions about presentation and disclosure: (i) Occurrence and rights and obligationsdisclosed events, transactions, and other matters have occurred and pertain to the entity. Completenessall disclosures that should have been included in the financial statements have been included. Classification and understandabilityfinancial information is appropriately presented and described, and disclosures are clearly expressed. Accuracy and valuationfinancial and other information are disclosed fairly and at appropriate amounts.

(ii)

(iii)

(iv)

A112. The auditor may use the assertions as described above or may express them differently provided all aspects described above have been covered. For example, the auditor may choose to combine the assertions about transactions and events with the assertions about account balances.