The risk is measurable by many analysis methods, in this article the application method will be shown by means of risk matrices and its evaluation by means of the inherent risk and control risk. An outline and example of its application is also presented.
The evaluation of the risk in investments by the financial manager is essential in the consolidation of the company against the requirements of business managers.
Inherent risk factors
|
Origin |
Possible solution |
| The nature and amount of investments has changed significantly | Application of procedures to ensure the updating of control systems |
| Recessive conditions of the economy cause liquidity problems generating the sale of investments at unfavorable values | Analysis of sales made before and after the end of the year to anticipate possible losses |
| The cooperative popular fund went into default | Analysis of possibilities to recover assets |
| There is no timely and reliable information on the companies in which the investments have been made to record the corresponding proportions in their results. | Analysis of alternative possibilities of information, management information, marketing, etc. |
Questionnaire
Whole
- Are all investments and securities in favor of the company recorded? Does the financial statements show the balance of all investments securities that involve income for the economic entity?
Existence
- Do all investments and securities represent economic events that have occurred during the period and are they rights of the entity? Are the balances of the investments and securities group accounts reflected in the financial statements real?
Accuracy
- Are investments and securities recorded in accordance with those established in GAAP? Are investments and securities recorded in accounting made for correctly arithmetic amounts?
Valuation
- Are all transactions related to investments and securities valued according to methods of recognized technical value? Are all the accounts of the investment and securities group duly valued at the correct amounts in accordance with GAAP?
Presentation
- Are all investments and securities group accounts properly classified in accordance with GAAP? Are all investments and securities group accounts properly described in accordance with GAAP? Are all investment and securities accounts properly shown in the financial statements in accordance with the standards and provisions that apply to it?
The risk is inherent in an activity when humanly it cannot be controlled and it is control when due to carelessness or omission an anomaly occurs in the proper functioning of one or more processes.
Control risk factors
|
Origin |
Possible solution |
| Securities do not have adequate physical protection | Increase the scope of the auditing task |
| No reports are prepared for management regarding the investments made and their results | Analyze with management the balances and their evolution, both of investments and their results. Find alternative integrity controls |
| The results of the investments are not compared by the expected amounts | Analyze changes, trends and evolution by type of investment and compare with market values |
Control environment
Questionnaire
- Are there policies for investment management? Are there manuals for investment management? Are investment management systems systematized or manual? Are investment management policies oriented towards achieving the objectives and goals of The entity? Is senior management concerned about improving human resources through training courses for officials who manage investments? Are the skills and abilities of applicants taken into account according to the functions of the position in the investment area ? Is there a review of the new policies and practices in the investment area regarding their adequacy and compliance? Are the main critical points in the investment area that require greater control?applying the principle of exception? Is the degree of effectiveness of the current administrative controls measured? Is there an optimal allocation of resources? Are the investments identified and interrelated with the income and expenses of the company? Are the weaknesses of the area revealed of the organization and provide means to correct such deficiencies? Is accounting information useful for investment decision making?investments?investments?
The control environment can be classified as strong except for delays in obtaining third-party documentation regarding investments and their results. And the lack of adequate physical controls and security measures on securities.
Application 1.
Detection risk matrix
|
Inherent risk |
Control risk |
Detection risk |
|
Tall |
Medium |
Low |
Application 2.
Risk profile matrix
|
Inherent risk |
Control environment |
Risk profile |
||
|
Tall |
Strong |
Medium |
||
| Evaluation | Whole | Existence | Accuracy | Valuation |
| Inherent risk |
Tall |
Tall |
Medium |
Tall |
| Control environment |
Neutral |
Strong |
Strong |
Strong |
| Risk profile |
Tall |
Medium |
Low |
Medium |
