Question

b) Reflect on what you have learned and how you have benefited from taking Internal control course. Reflect and describe which key concepts and topics in this course have made you a stronger candidate to enter the business world. Discuss how this course has affected you in your professional development as a student and as a person as well as encouraging you on your academic path.

c) I have subscribed to several audit sites that discuss SOX and implementation. Below is a question that was asked - I thought it would be interesting discussion here. What are your thoughts on the question below....

Let me pose a hypothetical case as it relates to Sarbanes Oxley 404 compliance. Suppose that in the course of their review, the external auditors copy the compliance testing workpapers which were prepared by members of the Internal Audit staff.

After issuing an unqualified opinion, a financial scandal erupts in the company, triggering a shareholder lawsuit. During discovery, the external auditors state that they relied on the workpapers of Internal Audit. While this will not be a defense for the external auditors, the attorney tracks down the Internal Audit staff member whose initials appear on the original workpaper stating the procedures were adequate and effective. This staff member also happens to be a CPA and/or CIA.

What is the possibility that this individual staff internal auditor (not a corporate officer or Audit Director) can be named as a party to the lawsuit and be held personally liable on the basis that as a certified professional he had a higher responsibility to ensure that the information was correct. Is this something we should be considering before allowing the external auditors to copy our workpapers?

Answer 1

Benefited from Internal control courses + Stronger candidate ti enter the business world :

Internal Control is nothing but process established in the organization . Plan , process , design , Physical security all are part of Internal Control process . Certain Characteristic of Internal control system :

1. Segregation of Duties= to reduce fraud and error
2. Personnel Qualified enough to complete activity
3. Sound practice to follow
4. All Financial transaction should be authorised, accounted

Any organization , detail Internal Control system has been recognised by Executives , Board Member, Regulators ,

Internal control should be based on systematic and risk oriented approach , to ensure that there are adequate control in area with high risk.. To ensure that reliable financial statements that are prepared in accordance with accounting principles generally accepted by US GAAP

Broad checking item under internal Control systems are :

1. Existence – ensire whether asset and liability really exist or Not . Like Inventory should be available and countable . Asset must be capitalized and accounted in the financial .
2. Rights and Obligation – Proper right established on the asset and we can derive future economic benefit from using those asset .In same line , Liability to recognised .
3. Completeness – to ensure that all transaction has been accounted ,documented
4. Accuracy, Valuation – Need to ensure that all assets and liabilities are correctly valued.
5. Classification –Need to ensure that classification of transaction and disclosure of financial transaction as per standard and GAAP
6. Accuracy relates to Administrative Expenses /
7. Effective monitoring system need to established to ensue about correctness of Internal control system

The plan Audit identifies material Misstatement in accounting records

After issuing an unqualified opinion, a financial scandal erupts in the company, triggering a shareholder lawsuit. During discovery, the external auditors state that they relied on the workpapers of Internal Audit. While this will not be a defense for the external auditors, the attorney tracks down the Internal Audit staff member whose initials appear on the original work paper stating the procedures were adequate and effective. This staff member also happens to be a CPA and/or CIA.

In relates to above matter , While release Audit report , Internal Auditor mentioned that “ In our opinion , the financial statements gives true and fair view of the financial Position of the company” . Internal Auditor used to review , ensure , check complete Internal control system , process of any organization.

During Audit period , if they faced any disagreement with Management regarding application , acceptability or adequacy of accounting policies or any limitation in their scope of work . then Internal Auditor issue Qualified report Any significant material misstatement or financial huge impact , then they iaaue Qualified Audit report .

Above case , While doing Internal Audit , they never faced any such transaction or issue with management to Qualified the report .

External Auditor can rely on Internal Auditor in certain cases and we noticed that to save cost and time , external auditor may be place reliance on the work carried by internal Auditor , mainly relates to companies Internal Control system , process .

External Auditor should design Audit plan after discuss with Internal Auditor as well as External Auditor will use knowledge of Internal Auditor . External Auditor will judge or evaluate of the level of competence of the Internal Auditor