Pineda, Maricar R. CBET-01-502A: Internal Factors

PINEDA, MARICAR R.
CBET-01-502A
CHAPTER 3
1. What are the benefits of the internal audit function establishing a risk-based
plan when identifying the priorities of the internal audit activity?
Internal auditors are able to identify redundancies in operational and control
procedures and provides recommendations to improve its efficiency and effectiveness.
If the auditor has been educated in accountancy, has had experience in accounting, and
has focused primarily on accounting and compliance audits, the auditor is more likely to
view most matters from an accounting and compliance prism. While this is also
understandable, it is reason enough for auditors to be cognizant of this bias and make
every effort to broaden their thinking into other types of risks.
2. Describe three ways that internal auditors can better identify the risks related
to the area under review.
Internal auditors should include in the risk identification exercise people with an
extensive knowledge of the program or process that will be analyzed. This involves
employees and executives with high expertise in their field as their expertise can be
very helpful at the point in the process. Another way to identify relevant risks is to use a
prepared list that can help to identify some of the key risks that should be included in
the assessment. When using them, auditors should always consider the oddity of their
organizations and make sure that the list is adapted accordingly.
3. What are three internal and three external factors affecting a typical
organization? How do these factors affect the future prospects of the
organization?
Internal Factors
Equipment. The types of equipment available and the ways they are used limit the
ability of the process to produce more high-quality goods and deliver services.
Employees. Lack of skilled and motivated workers limits the productive capacity of any
process. Attitudes and other mental models embraced by workers can lead to behaviors
that become a constraint on the process.
Policies. Written and unwritten policies can prevent the process from producing more of
higher quality goods and services.
External Factors
Customers. Customers not only affect decisions made by the management but they are
the key driver for decisions made throughout the organization.
Government. Their policies such as changes to regulations, taxation, interest rates and
spending programs therefore have a huge influence on individual companies'
performance and their stock price
Competitors. They will try to win market share by cutting costs, improving efficiency,
lowering price and innovating by either creating new products and services or improving
upon old ones. In other words, competition tends to give consumers better goods and
services at lower prices.
4. Describe an event that has transformed or disrupted an industry and include:

(1) An example of an organization that benefited from that opportunity and (2) an
example of another organization that mismanaged it and suffered losses as a
result.
The process begins with a new company addressing a gap in the market, where
a segment of the population has traditionally been overlooked. By offering an alternative
product or service that is usually more convenient and affordable, the new company is
able to reach consumers who had previously been ignored.
(1) An example of the organization that benefited from that opportunity is Netflix.
Starting out as a company supplying DVD mailouts, Netflix offered a cost effective and
convenient product to an area of the market that was previously overlooked. Netflix did
not originally pose a threat to the likes of Blockbuster, operating in a distinctly different
segment of the market.
However, following this initial success, Netflix made the bold move to disrupt its
own business model, moving away from a safe space and breaking into streaming
media. Disruptive innovation usually involves a startup disrupting an established player
and this is exactly what happened with Netflix.
(2) An example of another organization that mismanaged their industry and
suffered losses is the company of Nokia. With the arrival of the Internet, other mobile
companies started understanding how data, not voice, was the future of communication.
Nokia didn’t grasp the concept of software and kept focusing on hardware because the
management feared to alienate current users if they changed too much.
Nokia’s mistake was the fact that they didn’t want to lead the drastic change in
user experience. This caused Nokia to develop a mess of an operating system with a
bad user experience that just wasn’t a fit on the market.
5. List three organizations that provide lists of common vulnerabilities useful
during a risk assessment.
 The Federal Emergency Management Agency provides the Mapping Information
Platform and the Risk MAP (Mapping, Assessment, and Planning) to help
organizations by delivering data that increases public awareness and leads to
action to reduce the risk to property and life.
 The US Geological Service (USGS) has a great deal of seismic information to
help organizations identify their vulnerabilities from fault lines, and incident
history as a possible gauge to future activity through probability analysis based
on location, time span, and radius from a designated location. The USGS also
provides information related to landslides, volcanic activity, while the
Occupational Safety and Health Administration of the US Department of Labor,
also provides information about workplace hazards.
 The National Weather Service provides rain, hurricane, air quality, winter storm,
flood, and marine weather information, which can have a substantial impact on
the health, safety, and operation of organizational process. Recall the impact that
extreme cold and heavy snow fall had on the MBTA network during the 2015
winter season.
6. List three of the benefits of CSA programs.

 CSAs are designed to address the gap. They consist of questionnaires and other
forms that process owners complete that identify the major activities in their
programs and processes, the objectives, risks and controls, the individuals that
perform key tasks and controls, and the major challenges affecting these
programs and processes.
 CSAs require managers to think about the design and condition of their areas of
responsibility, and assess the presence and quality of the related controls.
 Effective CSA programs require communication, linkage to internal audit results,
providing feedback on the gap analysis, and reinforcement.
7. Describe three risks that are unique to each of the following two manufacturing
approaches: made to order (MTO) and made to stock (MTS).
Made to Order (MTO) is a methodology that involves manufacturing only after a
customer’s order is received, so the process begins when demand occurs. This is a
pull-type supply chain operation because manufacturing is performed when demand is
confirmed. In other words, it is being pulled by demand.
For example, in some cases, the process of assembling prepared parts starts when
actual demand occurs. Or, in other cases, the production process starts with the
obtaining of materials and parts, or further back from development designing
(engineering).
Made to Stock (MTS) is a methodology where products are manufactured based on
demand forecasts. Since the accuracy of the forecasts will prevent excess inventory on
one end, and minimize the opportunity loss due to stockouts on the other, the issue for
organizations is how to forecast demands accurately. This methodology means to
manufacture products for stock based on demand forecasts, which can be regarded as
push-type production. In environments of mass production and mass marketing, the
requirement for mass production urged standardization and efficient business
management such as cost reduction
8. Explain why internal auditors should consider bottlenecks, long cycle times,
redundancies, and reprocessing as operational risks.
This constriction can slow or even stop the flow of work until some intervention
occurs, or time passes allowing items to move through, while other incoming items
continue to accumulate. When input comes in faster than the speed of the process,
accumulation starts to occur. The blockage stalls production affecting the number of
items produced, and has an impact on customer satisfaction since it leads to an
increase in cycle time. Eliminating bottlenecks is critical for improving efficiencies in any
production line. Bottlenecks can be found by identifying the areas where accumulation
occurs, evaluating the output of the process, assessing whether each machine used in
the production process is being used to its full capacity, and finding the machine with
the highest wait time.
9. What are the risk implications of outsourcing? Explain why management must
remain vigilant even if a process and related activities have been outsourced to
another organization.
This trend toward outsourcing, which began with low-skill repetitive activities
being performed by lower cost third parties, has evolved to the point where companies
are increasingly becoming more reliant on third parties to perform critical business
functions. Using offshore outsourcing firms carries risk and challenges, including
different regulations, currency exchange exposure, language barriers, cultural
differences, the risk of supply chain disruption, and poor quality.
10. What are some of the practices expected of organizations to fight corruption
and support efforts to decrease institutional corruption?
Organizations continue to suffer from the scourge of corruption. Defined as
dishonest or unethical conduct by a person entrusted with a position of authority, often
to acquire personal benefit, it includes many activities including bribery and
embezzlement, though it may also involve practices that are legal in many countries,
such as blatant favoritism and nepotism. Internal auditors should examine where their
organizations operate, where their suppliers operate and where their customers reside,
and evaluate the implications of their unique geographical network to their risk profile.
Higher corruption indicators would naturally suggest the need for more robust audit
procedures.

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PINEDA, MARICAR R.

4. Describe an event that has transformed or disrupted an industry and include:

6. List three of the benefits of CSA programs.

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