Question

What's good about the following proposal? What's bad? Would you change anything?

Jane Lee, a director of a nonpublic corporation with a number of stockholders and lines of credit with several banks, suggested that the corporation appoints as controller John Madison, a certified public accountant on the staff of the auditing firm that had made annual audits of the corporation for many years. Lee expressed the opinion that this move would effect a considerable savings in professional fees because annual audits would no longer be needed. She proposed to give the controller if appointed, an internal auditing staff to carry on such continuing investigations of accounting data as appeared necessary.

Answer 1

1. The intention of the director of the company to appoint internal auditor in place of an audit firm which is carrying audit of the company from several years affects the interests of shareholders, lines of credits and also several banks as the newly appointed internal auditor don't have independence in performing his duties.

Bad things about the proposal.

1. As mentioned above it is not at all good to appoint the internal auditor saying that it would save costs to the company.
2. Non requirement of annual auditing is not a decision to be taken internally it should be approved by all the stockholders of the company.

Good things about the proposal.

1. The audit will be carried on throughout the year.
2. It will save costs to the company