Question

• Evaluate management’s role and obligation to shareholders for maintaining effective internal controls over company resources.
• Assume that you are a key member on an audit engagement team and discover a breach in internal controls. Discuss how you will report the breach and your expectations of management for a resolution to the breach.

Answer 1

Management's role and obligation to shareholder for maintaining effective internal controls over company resources Management is responsible for establishing and maintaining internal control to achieve the objectives of effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. Management shall consistently apply the internal control standards to meet each of the internal control objectives and to assess internal control effectiveness.  When assessing the effectiveness of internal control over financial reporting and compliance with financial- related laws and regulations, management must follow the OMB’s outlined assessment process. Annually, management must provide assurances on internal control in its Performance and Accountability Report, including a separate assurance on internal control over financial reporting, along with a report on identified material weaknesses and corrective actions.

The breach would be reported as follows

Individual managers must take systematic and proactive measures to

• Develop and implement appropriate, cost-effective internal control for results-oriented management;

• Assess the adequacy of internal control in Federal programs and operations;

• Separately assess and document internal control over financial reporting consistent with the process

• Identify needed improvements;

• Take corresponding corrective action; and

• Report annually on internal control through management assurance statements.