WRITE THE cONTROL ENVRIONMENT PRINCIPLE WITH FOCUS POINT:Purchase Operations

$1.$ Risk: Unauthorized Orders

$$ Assertion Type: Occurrence, Rights, and Obligations

Assertion: Only authorized personnel can approve orders.

$$ Likelihood: Low. Strong authorization controls can significantly reduce this risk.

$$ Magnitude: High. Unauthorized orders can lead to significant financial losses and inventory issues.

$2.$ Risk: Delayed Orders

$$ Assertion Type: Cut$-$off

$$ Assertion: Orders are placed and fulfilled promptly to meet business requirements.

$$ Likelihood: Medium: Supply chain disruptions can cause delays.

$$ Magnitude: High. Delays can impact production and sales, leading to potential revenue losses.

$3.$ Risk: Non$-$compliance with Requirements

$$ Assertion Type: Accuracy

$$ Assertion: Materials purchased meet specified requirements and standards.

$$ Likelihood: Medium: Variability in supplier quality can affect compliance.

$$ Magnitude: High$-$quality, non$-$compliant materials can affect product quality and brand reputation.

$4.$ Risk: Overpayment for Materials

$$ Assertion Type: Valuation

$$ Assertion: Materials are purchased at appropriate prices.

$$ Likelihood: Medium$-$market price fluctuations and negotiation effectiveness can vary.

$$ Magnitude: Medium; overpayments can erode margins, but they can be minimized by fielding surveys and negotiating with suppliers.

Risks in Information Accuracy and Reliability

$1.$ Risk: Inaccurate Order Processing

$$ Assertion Type: Accuracy

$$ Assertion: Purchased materials are ordered, processed accurately, and recorded on time.

$$ Likelihood: Medium: Human error and system inefficiencies can contribute to inaccuracies.

$$ Magnitude: High. Inaccurate processing can lead to financial discrepancies and inventory issues.

$2.$ Risk: Unauthorized Returns and Allowances

$$ Assertion Type: Occurrence, Rights, and Obligations

$$ Assertion: All returns and allowances are authorized and processed accurately.

$$ Likelihood: low. Established return policies and checks reduce this risk.

$$ Magnitude: Medium. Unauthorized returns can affect financial statements but are manageable with strict controls.

$3.$ Risk: Inaccurate Receipts and Recordings

$$ Assertion Type: Completeness and Accuracy

$$ Assertion: Receipts for ordered materials are properly authorized, prepared, and recorded.

$$ Likelihood: Medium: The complexity of transactions and volume can lead to errors.

$$ Magnitude: High. Inaccurate records can impact financial reporting and inventory management.

$4.$ Risk: Unauthorized Data Modifications

$$ Assertion Type: Occurrence and Accuracy

$$ Assertion: Approved changes to data files are recorded accurately and timely.

$$ Likelihood: Low$-$data access controls can mitigate this risk.

$$ Magnitude: High. Unauthorized modifications can lead to significant data integrity and security issues.