INTERNAL AUDIT PROFESSION Illustrative Solutions Students may make the case

Internal audit profession illustrative solutions

  • Seneca College
  • ACF 653
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  • leeto
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INTERNAL AUDIT PROFESSIONIllustrative SolutionsStudents may make the case that other rules apply as well:“4.2Shall perform internal audit services in accordance with the International Standards for theProfessional Practice of Internal Auditing.”“2.1Shall not participate in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organization.”Students may express different points of view but it ultimately comes down to the internal auditor’s responsibilities. One point of view is that this situation involves manipulation of the financial statement and thus should be reported to the audit committee as a potential fraud. However, other students should recognize that this is not so clear. Mark is not performing an external audit of the financial statements, which means that, unless he is doing this work as part of an arrangement with the external auditors as support for their work, he may not have sufficient appropriate evidence or the perspective needed to draw valid conclusions about the effects of his inventory and accounts receivable findings on the financial statements. The valuation of inventory and accounts receivable is the responsibility of management and not the internal audit function unless specifically stated as an engagement objective. This is different than the case for external auditing in which the audit’s objective is to express an opinion on the fairness of the financial statements (including significant estimates made by management).However, Mark does have a responsibility to report significant deficiencies in controls that come to his attention during the engagement. Such deficiencies include, for example, the lack of clear policy criteria for determining inventory obsolescence and accounts receivable write-offs and who should bemaking these decisions.B.There are several things that Comstock’s management and/or the internal audit function might have done to reduce the risk of such a situation arising. These include, for example:The establishment of clearer accounting policies regarding inventory and accounts receivable estimates.Stronger senior management leadership, or tone at the top, in terms of communicating policies, reinforcing the importance of adhering to the policies, and holding management personnel accountable for complying with the policies.The establishment of a financial disclosure committee responsible for addressing and resolving issues of this nature.Clear statements in the company’s code of ethics regarding employees’ responsibilities for communicating potentially inappropriate behavior or actions.
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