CAPITAL PLAN AUDIT

This articl is made to discuss about audit of capital plan and review of status of company’s compliance with the provision of Sarbanes Oxley Act of 2002. This act requires that a review about material weaknesses in internal controls. This discussion will include- 

  Objectives of capital plan audit -

There are various objectives significant to the audit of capital planning process. Main objectives of audit of capital planning are-

Review every capital decision and judge whether those are consistent with the enterprise capital, financial and operating architecture -

One of the key objectives of capital planning audit is to review every capital expenditure and decision taken in context of the company’s capital structure. Further, it is to be judge whether appropriate consideration has been made in respect of financial and operational factors before making such decisions.

Review of Cost and benefit analysis of each capital decision -

Auditor of a capital planning team shall judge whether each capital decision has adequate backing of cost and benefit analysis. This analysis will provide a overall idea whether this capital project will run well or not.

Review of internal control used for capital decisions-

Key aspect of a Capital planning audit is to verify whether proper internal control in respect of these decisions is in place. Internal control system consists of managers, supervisors and board forms an integral part of a capital planning decision. Proper structure of a capital planning team is considered to be most important for executing a capital planning decision.

 Review of implementation procedure adopted for a capital plan-   

Capital planning is a long term procedure and in order gets sustainable success in capital planning throughout monitoring in implementation of capital plan shall be done. Auditor’s job is to identify the implementation procedure adopted by the company and judge whether that is sufficient to achieve objective of the plan.

Ensure all legal compliance-

One of very key aspect of capital plan audit is to ensure whether decision has been taken in view of all necessary compliance such as Sarbanes Oxley Act or any other act applicable for this purpose. Because a proper capital plan without compliance will surely be a failure in long run.

Apart from the objectives stated above there are some key objective of capital plan are stated below-

•To justify capital funding requirement

• To done proper risk assessment

ü  Identify and sufficiently test controls that are intended to address the risks of material misstatement;

ü  Obtain sufficient evidence to update the results of testing of controls from an interim date to the company's year.

ü  Sufficiently test controls over the system generated data and reports that support important controls.

• To ensure accountability in capital planning

• To judge reliability of target resources and plan expenditures

• To review of long range capital plans

·         Internal control Audit Report and reportable issues under SOX –

We have audited financial system and internal control of xxx company. This audit report shall include a judgment about internal control of xxx company. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States.

Deficiency in internal control can be observed as data used for calculating growth and coat of capital is consistent enough. This observation simply exposed non-existence of structural internal control of the organization.

 This report includes recommendations regarding reportable issues under Sarbanes Oxley Act. The Sarbanes Oxley Act, 2002 requires company’s management to assess and report in respect of effectiveness of internal control of the entity. Section 404 of this act requires auditor to report on adequacy on internal control of the entity. Reportable issues under this act are-

1. Whether a proper internal control on financial reporting and operation is exists in the organization

2.  Report in respect of results of test of control procedures.

Recommended improvement in internal control to control weakness in capital plan -

Internal control forms an integral part of the entity and it is observed that UPC’s internal control has some weaknesses which provide inconsistent data for analysis. In order to address this issue following steps can be taken-

• Internal control shall be documented and integrated through formal and informal channels into the elements of management system.

• Documentations are only the beginning of risk management. Rather it shall be ensured that proper understanding of the system has been done by the people involved in this system.

•  Assign particular responsibilities to every person of the internal control team and make them accountable for every decision.

• Determine how change in internal control approved, implemented and monitored.

• Organizations need a structured process to ensure that the internal control system is being thoroughly evaluated on a timely basis.

• Define a corrective action plan for major control weaknesses.

·         Qualitative factors involved in decision making-

There are some key qualitative factors to a decision making process. Ignoring this factors could create a risk of failure of project. Those factors are-

• SWOT Analysis

• Human Resource Management

• Public Image

• Long term survival

• Stakeholders’ analysis of projects

Other Factors-

• Political

• Economic

• Social

• Technological

There is huge amount of risks associates with these factors so, ignoring it could lead to a bigger problem. These risks could be-

•   Internal decision of company conflicts with political principles.

•   Negative reaction of local community to the project. 

•   Government policy does not support project.

•   De-motivated human resource of the company

• Social impact of the project is not indefinable or negative.

This all are qualitative factors, hence very subjective and cannot be taken lightly.