2. Compare the responsibilities of internal auditor and external auditor in relation to: I. The design and operations of systems and controls Internal auditor | External auditor | Internal auditing activity is primarily directed at improving internal control. Internal auditors perform audits to evaluate whether the systems and processes are designed and operated effectively as well as providing recommendations for improvement. | External auditors may be called upon to determine if an organization 's internal controls are adequate. This involves investigation into internal auditing practices. If, after evaluation, the internal controls are found to be lacking, the external auditor can report the problems to the company, which can …show more content…
Therefore Azad Solutions owed duty of care towards the shareholders of Super IT.
Identify any four (4) cases and the decisions thereon pertaining to auditors ' liability to third parties.
1) Candler v Crane Christmas &Co (1951).
Facts of the case
Mr. Chandler had been induced to invest a sum of £2000 for shares in a company after relying on the accounts that had been prepared negligently by the accountant of the company. The accountant knew the purpose of the accounts being prepared and did not deny that they had been negligent in executing this assignment.
Held
The case was heard in the House of Lord where the majority decided that no damage flowed from the breach of any duty owed by the defendants to the plaintiff because the plaintiff had invested the sum of money before the relationship between the defendant (i.e. auditor) and the plaintiff (i.e. the shareholder) of the company had become operative.
From the facts and decision held it can be seen that the court had laid down the principle that provided there was no contractual or fiduciary relationship between the parties, the auditors did not owe a duty of care to the plaintiff.
2) Hedley Byrne & Co. v. Heller & Partners Ltd (1963)
Facts of the case
The appellants (Hedley Byrne, an advertising agent) asked their bank (National Provision Bank) to ascertain from their
Read the David Miller case from Chapter 5. After reading the case, describe a reason why someone who has been entrusted with the firm’s assets would commit a fraudulent act against the company. Based upon your understanding of the case and your professional and personal experience, recommend a series of actions that should have been taken in order to pre
The case Caparo Industries v Dickman is a leading case that identifies a test to determine whether or not an employer owes a duty of care within a negligence case. In this case Caparo Industries had taken over a company called Fidelity and they seud Dickman for negligence in the preparation of accounts. Sir Neil
Moreover, the auditor should preform test for effectiveness of internal controls. He may interview management by asking questions on the process of the transactions and operational activities. He may discuss with management the process of some transactions from beginning to end and then test it by using sample testing. Also he/she should make sure that there is proper control of activities; policies and procedures for adequate segregation of duties are met.
Having internal controls is one thing, but how the company evaluates that control is a matter all by itself. Being an independent auditor, it is our job to understand an entity and
The Appellate and trial court decisions were affirmed and the Court found for the Defendant. The Court held that ‘piercing the corporate veil’ is invoked to ‘prevent fraud or to achieve equity’. In this case the Court found no evidence of fraud, misrepresentation nor illegality. Although the defendant controlled Westerlea’s affairs, Westerlea maintained an outward appearance of aDseparate corporate identity at all times. Further, the creditors were not misled, there was no fraud, and Defendant performed no act to cause injury to the creditors of Westerlea by depletion of assets or otherwise.
Throughout the case, it can be analyzed and expected to say that Deloitte & Touche have committed a breach to its fiduciary duty to Vertical Pharmaceutical at the end. Vertical Pharmaceuticals Inc., realized a huge loss as a result by Deloitte & Touche. Therefore, this shows that Deloitte & Touche did indeed breach their fiduciary duties. All the falsified reports and malpractices that were said to be revealed by Deloitte & Touche would be said to not be real by the forensic audit that was conducted. At the end, the court can rule that Deloitte & Touche did indeed breach their fiduciary duty to Vertical Pharmaceuticals.
Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.
Internal controls are regulated by the Sarbanes-Oxley Act of 2002. This act assigns responsibility for a company’s internal controls on its executives and directors (Kiesco et.al., 2008). This assignment of responsibility forces the company to use effective internal controls by making a certain group responsible. The act also established the Public Company Accounting Oversight Board which regulates the activities of auditors. Together, assigning responsibility and defining the standards of auditors, the Sarbanes-Oxley Act of 2002 helps to safeguard a company’s investments, assets and future successes by discouraging fraud and theft.
A company might decide to establish an internal audit department because an effective and independent internal audit department add values and improve effectiveness of risk management, control, and governance processes. It also helps prevent and detect the frauds.
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.
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
Since reliable financial information is essential for investors and other stakeholders to take adequate decisions, this reliability must be backed by independent review performed by independent and certified auditing firms, which are supposed to verify and certify financial statements issued by a company’s management. If the auditor is not competent and independent from management, the audit of the financial statements loses its credibility (Schelker, 2013, p.295). According to Impastato (2003), because of audit failures, accountants are to blame for investors losing billions of dollars in earnings in addition to market capitalization (as cited in Grubbs & Ethridge 2007).
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 role of internal audit is to provide independent declaration that an organization’s threatadministration, governance and internal control processes are functioning effectively. Internal auditors deal with concerns that are essentially important to the existence and success of any organization. Unlike external auditors, they aspect beyond financial possibilities and statements to reflect wider problems such as the organization’s reputation, development, its power on the location and the approach it treats its organizations.In summary, internal accountantssupport organizations to thrive.