Case Study: Internal Controls And Audit Procedures

Auditor Independence contains 9 parts which stablish standards for external auditor independence, so it will have limit conflicts of interest, also contains that an approval requirements for new auditor, audit partner rotation, and auditor reporting requirements. Also restrict auditing organization from providing non audit services for the same clients they audit.

According to the Public Company Accounting Oversight Board (PCAOB), The primary objective and responsibilities of auditor is to express an opinion on the fairness with which all financial statement including all of its (material aspects, financial position, the result of the company operation and its overall level of cash flows) AU Suction 110. Thus, what this means is that auditor must be fully independent and must be fully able and willing to apply professional judgment as it relates to the audit engagement under consideration.

You are the internal audit senior responsible for conducting an assurance engagement of the XYZ Company payroll process. This process has not been audited for three years and, as such, is due in the normal audit cycle. There have been no significant changes since the previous audit, that is, there were no system changes, no reorganization of personnel, and no substantive procedural changes. However, during the last assurance engagement, the internal audit function identified several observations, some of which were considered significant. The significant observations related to:

Internal control refers to methods, techniques and measures that are practices by a company to safeguard the assets, enhance reliability of its accounting records, increase efficiency of its operations and making sure everything they do is in line with laws and regulations as ordered by security and

Independence is extremely important, necessary, and appropriate because without an independent IAD, IAD’s objective of adding values and improving business operations cannot be achieved. Independence is also a key component in Attribute Standard. Accountability section states the chief audit executive’s responsibility to the management and audit committee. It is necessary and appropriate because it leads to significant communication between the CAE and top management and between the CAE and the Board; it also helps ensure that the standards and requirement of the internal auditing function is achieved.

a. A third-party user cares whether the auditor is independent so that the user could evaluate the credibility of the financial statements and determine whether or not to rely on the financial statements to make investment or business decisions. In addition, through assessing the auditor’s independence, the stakeholders could also better evaluate the performance of the management and the value of the audit work.

Internal Controls are the policies and procedures used to safeguard assets, ensure accurate business information, and ensure compliance with laws and regulations. In the 2000’s, there were many businesses, stockholders, creditors and investors affected by scandals and fraud. The Sarbanes-Oxley Act of 2002 is extremely important to the laws affecting U.S businesses today; this is why there is such an emphasis on the importance of effective internal controls. The three internal control objectives can be achieved by applying the five elements of internal controls. The five elements are control environment, risk assessment, control procedures, monitoring and information communication. Each of the five elements performs a separate duty towards a business in order to ensure that the business is being protected. I’ve been employed at Target for nearly 2 years now and I witness and work with the internal controls of the business. Target is the second largest discount retailer in the United States and because of this they take internal controls very seriously. When any person comes in for an interview, your interviewer introduces you to them right away as a way to introduce you to the company.

The company should hire it’s own internal auditor’s to ensure that the staff understand the company’s accounting procedures. This also helps the external auditor as it give the external auditor another viewpoint when assessing fraud risks. The internal auditors are apart of those charged with governance and that helps take the pressure off of the external auditor if a fraud should be discovered.

According to ICAEW, auditor independence mainly refers to the independence of the external auditor from parties that have an interest in the financial statements of the business being audited. It requires having both integrity and an objective manner to the auditing process. In order for the concept to be deemed effective the auditor needs to carry out their work freely. One of the main purposes of auditing is to increase credibility of the entity’s’ financial statements, as they have expressed their own professional opinion on the truth and fair view in accordance with the proper accounting standards used. This is only possible if the audit is made with reasonable assurance that it has come from an independent source and has not been influenced by other parties, such as managers, directors or by conflict of interest.

Internal management control refers to the procedures and policies in place to ensure that company objectives are achieved.

Internal auditing is an independent objective assurance and consulting acitivity designed to add value and improve an organizations operations.

Internal auditors cannot effectively provide an analysis on the company’s internal dealings as they are part of the company. External auditors, however, can observe these processes from the outside and then determine where the funds of the company and whether the dealings adhere to the regulations. Using external auditors in a company prevents conflict of interest from happening. Conflict of interest is a situation where an individual or organization has multiple interests and of those multiple interests, one could possible corrupt the motivation for an act on the other when the auditor has any kind of beneficial interest in their client’s performance. In other circumstances, there is also the threat of familiarity where auditors become

The internal auditor have a several roles in the company which is the first one the audit committee need to discharge and restrict the governance responsibilities and the

The lack of independence for external auditors will lead to the neglect of auditing risks (William R.K., 2003), which are the main reasons for the failure of certified accountants and professional accounting organizations. The consequence of the external auditors deprived of independence would be very serious. And there are many cases, which aroused by the failure of external auditors and most are related to the lack of independence. One famous example is the bankruptcy of Enron and the role played by its external auditor, Arthur Andersen (Todd, S., 2003). Arthur Andersen was once one of the biggest accounting companies in the world, and was canceled for the involvement in the Enron bankruptcy scandal.

This paper critically analyses the independence of the internal audit function through its relationship with management and the audit committee. Given the growing role of internal auditing in contemporary corporate governance and independence has gained renewed attention.