Question

Tampa Electronics

The student needs to identify the risks and weaknesses in Internal Controls (IC) pertaining to the issues involved in the audit of Tampa Electronics and the impact of their current IT system. The case requires an identification of the IC weakness and the resulting impact on the audit. In addition, the audit risk inherent in an IT driven audit needs to be fully disclosed, discussed and supported by regulatory pronouncements. The role of Data Analytics is an integral component of the case and should be completely addressed in your analysis.

Answer 1

In an “effective” internal control system, the following five components work to support the achievement of an entity’s mission, strategies and related business objectives

1. Environmental control

2. Assessment of Risk factor

3. Control activities through policies and procedures

4. Quality of Information and communication

5. Monotoring evaluations and reporting deficiencies.

The risk and weakness in IC:

Internal control systems are in place but their effectiveness cannot be guaranteed. This exposes to serious default situations. There is significant effect of internal controls on credit risk especially the control environment, risk management, control activities and monitoring. The non-disclosure of material internal control weakness is a contributory factor to the ineffective internal control systems. There is however a perceived board ineffectiveness which does not augur well for effective internal control systems

Quantitative research approach is used to test hypotheses on the relationship between internal controls and credit risk