Tyco Internal Audit Case Study

I believe that someone possesses integrity if they act in accordance with the ethical standards they hold true. Every individual has their own standard of ethics or core principles that guide their actions, and integrity encompasses those principles. When someone abides by the principles they believe to be ethical, they are acting with integrity. According to The Federation of European Accountants, individuals should follow their own core principles and their company’s ethical standards as well. The combination of these principles “form a framework for behaving with integrity” (Federation of European Accountants, 2009, p. 7). It is a choice to hold oneself to ethical standards, and choosing to live by those standards is acting with integrity.

Integrity is the hallmark of the accounting character and is the springboard form which all accounting decisions must be made. It is the basis for which the public trusts their accountants and from which the accountant

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.

This means that the main goals of the act in enhancing auditor independence in preventing fraud in future are faced with pressures regarding its efficiency. Case 3 Effective fraud control depends on prevention of the following three weaknesses in the internal control system. First is the static nature of internal controls. This means that internal controls might not be fluid in terms of evolution with the changes experienced in technology, business and the fraud environment. Second is the immunity of the internal control systems. For instance, if a company’s internal control system has weak control policies for its procedures and processes, then the company becomes a target for both internal and external criminal activities. Thirdly, are unclear definitions of the roles and responsibilities of ownership. By this it means that if the internal control system is not well defined to the employees, then there will be an assumption that the role of the internal controls is to only perform audits hence they would not be interested in preventing fraudulent

Even though The Schwan Food Company is a private company, since the company’s goal was to double its size in five years, establishing an internal audit function could provide assurance and consulting services to help the company achieve its objectives and expand globally. The four factors that may have caused The Schwan Food Company to change its internal control practices and corporate governance structure are,

The engagement in this type of activities will provide the IAD with the responsibilities to fulfill certain degree of assurance from an independent and objective position. Although, the consulting activity could be the main focus for the IAD in this organization, the assurance portion could be a source of reliability and confidence for the management team, the board, and the employees in general regarding the work performed by the different departments. Another, recommendation will be to include in the charter the complete, unrestricted, and free access to any records and physical properties by the internal auditor while working in an engagement. This freedom will facilitate immensely the work performed by the internal auditors allowing them to have all the information required to accomplish their assurance and consulting objectives. Moreover, the IAD charter should include system to monitor the disposition of results communicated to management and a system to resolve risk conflicts between the chief audit executive and the senior management. The addition of these two crucial parts of the internal audit activity in the charter will facilitate the achievement of quick results and a more effective and efficient way to resolve significant issues that may arise in the

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.

The audit committee is responsible for the following. It is responsible for reviewing the financial statements, for reviewing the company's compliance and control systems, for monitoring the effectiveness of the internal audit function, assessing the independence and objectivity of the external auditors, and ensuring the employees have the opportunity to raise concerns about matters of financial reporting. The audit committee supports the Board. Ultimately, because the audit committee is comprised of members of the Board, they are elected by the shareholders. Should the shareholders decide, they can replace these members at the annual meetings.

The auditor’s responsibilities are to audit annual financial statements and internal controls over financial reporting, and reports from the 10-Q quarterly reports. The auditor must also advice on new accounting pronouncements, and consolidating financial statements. (Intel Proxy Statement 2011, 48)

The UK Corporate Governance Code requires that all listed companies set up an audit committee of at least three, or in the case of smaller companies two, independent non-executive directors (icaew, 2017). The audit committee should be made up of trustees with a combination of skills and should include at least one member who has a strong financial knowledge (Riner, 2017). A good audit committee should be designated a financial expert and staffed with a select group of people knowledgeable about financial matters. Among the many important roles, the audit committee plays within an organization, is to provide internal audit oversight. The audit committee acts as a direct link between the board and the independent auditors, management and internal auditors who are responsible for these processes and controls. Effective audit committees enhance audit quality and build confidence in the financial reporting (Riner, 2017). The audit committee plays a critical role in providing oversight and serving a financial check on a company’s financial reporting system. The committee provides independent review and oversight through the company’s financial reporting processes, also be responsible for the internal controls and independent auditors (Financial Times, 2017). The audit committee is the central point of the effective corporate governance and it should be in a best position to offer effective oversight of the performance,

One of the recommendations for Tyco International Company is having an internal auditor. According to the Institute Auditor (IIA), internal auditing is an autonomous, objective assertion and consulting activity intended to add value and improve an organization’s operations. Thus, it will help a company achieve its objective by getting an organised, controlled approach to assess and increase the efficiency of risk management, control and governance processes. Under recommendation 6.2 MCCG, the board should create an internal audit function that will directly report to the Audit Committee. Hence, the board should find a head of internal audit that will give report to the Audit Committee. Also, the head of internal

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

This survey was conducted of two groups: first group was represented by internal audit directors, and the second group was formed by staff auditors who work directly which external auditors. Both groups were asked to evaluate the overall performance of their organization’s external auditor and their perceived relationship with the external auditor. Next, we present the main results obtained through this survey: ♦ 92% from internal audit directors appreciated that external auditors make full use of the expertise of the internal audit staff; ♦ 50% of internal audit directors perceived that relationship between internal audit and external audit is an “excellent” one, while 31% appreciate this relationship as “good”; ♦ Staff auditors differed substantially in their perceptions of the external auditors’ of the internal auditor’s expertise. Only 39% of staff auditors considered that the external auditors fully utilized their expertise; ♦ Starting from the statement of Morris N. (Morris N., 1981) that “the external audit firm has the ear of the board of directors and, where one is established, the audit committee. Internal auditors do not have the same relationship”, Peacock E. and Pelfrey S. wanted to identify the relationship between internal audit and audit committee. From this point of view, more that 80% of the respondent directors of their study indicated that their companies have an audit committee, and that the internal audit

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.