REQUIRED 1. Role of each of the following areas has in the establishment, maintenance, and evaluation of internal control: Management External Auditor Internal Audit External and Internal Auditors
2. To whom should the Director of Internal Audit Report.
Explain your answer.
3. Comment on the Audit Committee Members Perspective
as to the Committees current composition. MANAGEMENT
The management has the responsibility
to establish and maintain an effective internal control system within the organization. It must set a positive tone at the top, assess the risk of misstatement and fraud, develop information systems to communicate, monitor internal control system using appropriate metrics, and select integrated policies and procedures. MANAGEMENT In accordance with the Sarbanes-Oxley Act of 2002, the management is required to provide an annual report addressing the following points: 1. Understand the flow of transactions, including IT aspects, in sufficient detail to identify points at which a misstatement could arise. 2. Using a risk-based approach, assess both the design and operating effectiveness of selected internal controls related to material accounts. 3. Assess the potential for fraud in the system and evaluate the controls designed to prevent or detect fraud. 4. Evaluate and conclude on the adequacy of controls over the financial statement reporting process. EXTERNAL AUDITOR
The auditor should evaluate the controls
implemented by management to detect fraudulent activity that could lead to material misstatements of the financial statements. The auditor should then report the findings to the audit committee and express an opinion which corresponds to the congruence of the specific report to the applicable standard. The auditor should also attest to the quality of the internal control implemented in the clients organization in accordance with a suitable framework (usually - COSO). INTERNAL AUDIT
The internal audit team should
independently and objectively assess the effectiveness and appropriateness of internal control procedures, report their findings to the audit committee and make recommendations to the management. This is to ultimately fulfill its objective of adding value and improving an organizations operations. EXTERNAL AND INTERNAL AUDITORS
The auditors have the responsibility to
evaluate the effectiveness of internal control and must work closely with each other. Having a harmonious relationship between the external and internal auditor(s) will facilitate a more convenient audit process for the organization. TO WHOM SHOULD THE DIRECTOR OF INTERNAL AUDIT REPORT
Directors of Internal Audits should
report to the audit committee who is in better position to correct deficiencies in the internal control. In many cases as the CEO and CFO conspire to conduct fraud, reporting to the audit committee who is an independent body within the organization makes it harder for the management to cover-up their fraudulent acts. COMMENT ON THE AUDIT COMMITTEE MEMBERS PERSPECTIVE AS TO THE COMMITTEES CURRENT COMPOSITION
In an effort to comply with SOX, since
the current composition of the audit committee has no trained accountant, Nano Circuits should hire a financial expert as a member of the audit committee. Members of the Audit Committee should enhance their knowledge, skills and other competencies through additional trainings and seminars to be able to meet the terms and requirements set by the SOX. SUBMITTED BY: GROUP 5 (A531)