Question

Internal Audit

Question 2

The following is an excerpt from an audit report that was drafted by an internal auditor upon completion of an audit of the treasury function of a major organizational segment. The stated audit objectives were to (1) evaluate the adequacy of the control structure over cash management; and (2) identify opportunities for increased operational efficiency.

The CAE is upset with the quality of writing contained in the report. In addition, the CAE believes the report violates fundamental principles of good audit report design. You are requested to read the report and identify (1) violations of good report design, and (2) writing deficiencies.

DRAFT REPORT

FOR INTERNAL USE ONLY

March 21, 2018

TO:            Jane Meadows, Treasurer, XYZ Division

FROM:      Ian A. Rookey, Staff Auditor

      I were engaged to perform an operational audit of the treasury function under your control along with an audit assistant, Jane jerzak. You were coperative, as was your staff (except for Bonnie) for the most part and we appreciate it’s willingness to make things available to us as needed. However, as you will see later in this report, a number of recommendations are made to improve the economy and efficiency of the function under your control.

      During our audit engagement we tested the efficiency with which cash was collected and correctly and timely deposited with the local financial instititution. We looked at transactions recorded over 25 days and traced selected to receipts to bank statements showing dates of deposits. We also completed our standard internal control questionnaire and noted some dificiencies in your control structure which can be improved if you follow the recommendations sited in the paragraph below.

      The recommendations that we make are to

• Develop a sensitivity training session for your clerical employees so they will interact better with outsiders
• Consider using lock boxes
• To improve efficiency, more of the operation should be computerized and input, output and similar types of controls should be implemented as soon as possible
• There is inadequate segregation of dutiers between Bonnie and jane which could lead to fraud which would not be detected by other employees in the ordinary courses of their processing.

My director and I would be more that glad to discuss ou findings and recommendations with you at your earliest convenience. You will be pleased with the results is you put our recommendations into affect. Please call my director to set up an exit interview at your convenience.

Required

1. Identify a minimum of five principles of good audit report design that have been violated.

Answer 1

The principles that have been violated are as below:

1. The report must start with a title , " Report of Independent Registered Public Accounting Firm." In this report there is not title and it directly address the management which is inappropriate.

2. The report must be addressed to the directors or the shareholders whereas in this case it is addressed to a specific person.

3. The address must be followed by the opinion paragraph and not want the auditor independently perceives about the audit. The usage of terms such as "I" must be avoided. The opinion must be detailed and must include the name of the company on which the audit was conducted, the financial statements that have been audited, the period of coverage ,a statement indicating that the financial statements for the report is prepared and the opinion paragraph.

4. The critical audit matters communicated in the audit report must first be identified of the critical matter, how the matter was addressed during audit and the relevant financial statements that relate to the critical matter. Recommendations must not be made straight away in the report.

5. The audit report must be signed by the audit firm and a statement containing the year auditor began serving the company. The audit report must not contain any personal requests and recommendations.