Prepared By:

Sana Tanvir
Roll No. 15013
You are internal auditors of Novartis Pharmaceuticals. The company needs to audit the
manufacturing of the medicines. You have found the following situations in the laboratory of the
company.
The store keeper says that there are drums of chemicals that cost 20 million are to be used in the
medicine production. Each drum produces the 8500 tablets of the certain medicine.
Finished medicines documents show the number of 50,000 capsules of a certain medicine that
costs 50/capsule. New batch and the expired batch are kept in the same warehouse because of the
lack of the space.
Sample size of the accounts is kept too small for the audit procedures because of the lack of time.
Thus the funneling becomes difficult for the analysis of the accounts.
The company wants the auditor to finish the audit work with minimum questions and queries as
soon as possible for the purpose to get financial loan from the bank.
Planning meeting was too short and the complete plan could not be discussed with the audit team
especially the audit juniors and the internee due to lack of time.

Requirements:
Find out the six audit risk and their implications. Also give
the recommendation to control those audit risks.
Solved By:
Mohtashim Ali Khan
Roll No. 15011

Audit Risks:
There is internal auditor involve in all audit work.
Store keeper saying that there are drums of worth 20 million and each drum carries 8500 tablets.
Finished goods of 50000 tablets worth of 2500000 is in the warehouse but due to lack of space
expired is also kept there.
Sample size of the accounts is too small for the audit procedures because of lack of time. Thus
the funneling becomes difficult for the analysis of the accounts.
The company wants the auditor to finish the audit work with minimum questions and queries as
soon as possible for the purpose to get loan from bank.
Planning meeting was too short and the complete plan could not be discussed with the audit team
especially the audit juniors and the internee due to the lack of time.
Implications:
Due to an internal auditor is monitoring the matters it could be self review threat so it will give
the true and fair picture of the accounts under the pressure of management.
As the store-keeper is saying that that the drums are the worth of 20 million thats mean that the
drum chemicals are undervalued and may be overvalued it can be problematic for the company
while recording inventories.
Again the implement of worth 2500000 is only a guess thats why there will be difference in
actual stock and recorded stock and the other thing that the expired batch is placed with thats
mean it can be recounted and shows the inventory overvalued.
There are no whole accounts are too being considered because it should be missing something
important that should be accounted for analysis purpose.
As auditor is pressurized to clear the audit work with minimum questions. In hassle the auditor
may over look any serious matter that is also problematic for the management in future
Due to lack time there must be efficient in work for the auditor but if some important matters are
in reports that should be discussed and due to shortage of time it is not discussed properly then it
caused a serious damage to the company.
Recommendations:
There should be proper audit team to complete the audit work because the team should be
experienced in pharmaceuticals company it matters a lot to counter the audit work to accomplish
which are as per to the international standards of auditing too.
We know that the store-keeper is giving us the figures of the stock. The auditor should evaluate
the last store cards relevant to the same inventory and also consult with the latest invoices to
make a decision that whether it is true in valuation or not.
The accounts show that the finished stock is worth 2500000so it is very important for the auditor
to match with physical stock that is available at warehouse if it is not possible than at least go for
the average stock taking and if he or his team found any discrepancy then report to the
management as soon as possible. And there is some expired batch at the same warehouse so it
should be flagged or marked separately and also tell the management to disposed off expired
batch and also exclude it from the stock.
The accounts should be properly checked according to the IASs and IFRSs because it matters
about financial reports and statements it cant be done through sampling because if the auditor go
with the sampling technique it may not give the true picture of accounts so it is his responsibility
to check or examine the accounts Thorley as per the duties of the auditor which are set by ISAs.
The auditor work should be reasonable time and make sure there is not a single thing include or
to exclude for getting undue benefit like loan from bank. So the auditor should follow the
standards of auditing.
Auditor should be independent in express his opinion its nothing to do with the management
willing the audit work should be done in reasonable time and not to give undue benefit to the
management and the auditor should discuss each and every point of the minute book with the
management and auditor should also discussed to senior audit team to accomplish it in
reasonable time because it can be problematic for the management when reporting to the
shareholders and as well as for him too if any discrepancy report later on.
Critical Review:
As per critical review of reports of the company it looks like the management of the company is
in hassle that wants to finish its work in no time. Company is also missing lots of standard
operating procedures and also is not following the IASs as per they should be followed
accordingly. The company also not following strong internal controls.
As per we concerned with the management it is so lazy to do its job and so much relying
on the bottom line management and there is proper follow up by the management whether all the
things are going in a right direction. Management is not so much keen that how things going on.
Management is on a weaker side to cope with emergency situation but if some initial steps dont
take then its going concern is at risk.
As per concerned with the books of accounts not properly checked during the normal
course of business that are carried so casually and the accountants are not following the rules and
regulations as per IAS and IFRS actually the main problem that is faced by the accountants that
they are so pressurized by the management to complete the work in a flash so they may be
underperforming or their performance is biased towards the management.
Stocking is the major issue of the reported company because as per stocking is accounted
for not in a way that it should be done. The warehouse staff is lacking its duties there is not a
proper channel and the staff is not differentiating in finish shed goods and expired inventory so
there are no SOPs followed by the store department and there can be mixed up of both the
inventories.
Company is also threatening the audit staff to give the true and fair view just to get a loan
from bank to carry out operations so thats not the way to pressurize the audit team into
accomplish their goals it is also an unethical practice carried out by the company so this also
unjust because if the pressure is on auditor then how will they get confidence by shareholders to
invest more in the company next time.
Meetings are held every now and then but as discussed earlier the whole management in
a hurry to complete the task in flash. They have very low concern the reliability and accuracy of
information provided to them for further decision making and on the other hand the whole audit
team do not get full confidence to discuss all issues on one table for taking into account before
being reported to the management.