Strategic Systems Audit
Strategic Systems Audit
Introduction
As the organizations’ business strategies are becoming more complex over time, the auditing practices have been evolving correspondingly over the last century (Bell et al. 1997, 10), from a transaction-based audit prior to 1900, to risk-based audit approach during the twentieth century to today’s “Strategic Systems Audit” (SSA) as promoted by Solomon and Peecher over the last several years to reinvent the financial statement audit. Strategic Systems Audit focuses on the auditing procedures that test the assertions at entity-level based on the holistic understanding of the client business environment and business dynamics (Bell et al. 1997, 10, 22). However, there have been many critics of this approach where some criticize that SSA gave rise to a number of audit failures.
In the light of this, the purpose of this essay is to examine and critique the rationale and practicality of the suggested solutions given by the Strategic Systems Audit approach to audit planning and the conduct of the audit. To achieve such purpose, empirical evidence will be used where the principles set forth by the theoretical literature on the Strategic Systems Audit will be applied to a real-life audit scenario. As such, the SEC registrant, Hollywood Media Corp. is chosen as the organization to be audited by the SSA approach.
There are three sections in this paper, 1) Background and literature review, in which the background and fundamental concept of SSA approach will be discussed and critiqued; 2) Business Risk Analysis of Hollywood Media Corp., in which an Entity-Level Business Model suggested by SSA of this organization will be analyzed and the risk of this corporation will be identified as a precursor to planning the financial audit; 3) Conclusion and Recommendation, where suggestions will be made on how the approaches set out by Solomon and Peecher can be incorporated into a typical financial statement audit.
Background and Literature Review
Introduction
As the organizations’ business strategies are becoming more complex over time, the auditing practices have been evolving correspondingly over the last century (Bell et al. 1997, 10), from a transaction-based audit prior to 1900, to risk-based audit approach during the twentieth century to today’s “Strategic Systems Audit” (SSA) as promoted by Solomon and Peecher over the last several years to reinvent the financial statement audit. Strategic Systems Audit focuses on the auditing procedures that test the assertions at entity-level based on the holistic understanding of the client business environment and business dynamics (Bell et al. 1997, 10, 22). However, there have been many critics of this approach where some criticize that SSA gave rise to a number of audit failures.
In the light of this, the purpose of this essay is to examine and critique the rationale and practicality of the suggested solutions given by the Strategic Systems Audit approach to audit planning and the conduct of the audit. To achieve such purpose, empirical evidence will be used where the principles set forth by the theoretical literature on the Strategic Systems Audit will be applied to a real-life audit scenario. As such, the SEC registrant, Hollywood Media Corp. is chosen as the organization to be audited by the SSA approach.
There are three sections in this paper, 1) Background and literature review, in which the background and fundamental concept of SSA approach will be discussed and critiqued; 2) Business Risk Analysis of Hollywood Media Corp., in which an Entity-Level Business Model suggested by SSA of this organization will be analyzed and the risk of this corporation will be identified as a precursor to planning the financial audit; 3) Conclusion and Recommendation, where suggestions will be made on how the approaches set out by Solomon and Peecher can be incorporated into a typical financial statement audit.
Background and Literature Review
References: 1. Bell, T.,F. Marrs, I. Solomon, and H. Thomas. 1997. Auditing Organizations Through a Strategic-Systems Lens. New York: KPMG Peat Marwick LLP 2. Curtis, E., & Turley, S. 2006. The business risk audit – a longitudinal case study of an audit engagement. Working paper. 3. Hollywood Media Corp. 2006. Form 10-K Annual Report 4. J.D. Sterman. 2000. Business dynamics: Systems thinking and modeling for complex world. Irwin McGraw-Hill. 5. Knechel, R. W. 2005. The business risk audit: Origins and obstacles (and opportunities?). Working paper. University of Florida 6. Merle Erickson, Brian Mayhew, and William L. Felix. 2000. Why Do Audits Fail? Evidence from Lincoln Savings and Loan, Journal of Accounting Research 7. Securities and Exchange Commission (SEC). 2003. Report pursuant to Section 704 of the Sarbanes-Oxley Act of 2002.