Biggest risk in auditing

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manoj narayanan (Querist)
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02 March 2010 What in your opinion is the biggest risk in auditing a software company and why? can any one help more of the interviewrs are asking such questions.

vrnanda

vrnanda (Expert)
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13 March 2010 The basik risks in auditing the software companies are as follows:

a) Revenue - it is a general risk as a thumb rule. in a software company, check the workings of the revenue along with the POs and validity. as there are 100% chances that an amount unbilled revenue can go for toss. carefully scan through all the agreements and rates, timesheets approved by the project managers etc.....

b) Another important thing is "Payroll".
software is a labour oriented industry where as the same parts a vital amount in the p&l and an indicator of fraud. Fruad can happen by showing dummy employees there by increasing the cost which will ofcourse offset by the increase in the sales as discussed above. though bottom line will not change, the credentials of the financial statments can go wrong.

c) other one is fixed assets - you find huge amounts of capitalization and disposals of the furniture, plant and machinery. be cautious and slow while auditing these three areas.