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