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Case Problem: Organizational Function and Role of Internal Audit Function

The document discusses two case problems - drawing an organizational chart for an oil company's functional areas, and the role of an internal audit function. For the second problem, it outlines perspectives from a CEO, CFO, audit committee member, external auditor, and Director of Internal Audits on establishing the internal audit function at a electronics company. The CEO wants to comply with regulations, the CFO wants the internal auditor to report to them and focus on financial issues, while the Director of Internal Audits argues for a broader operational audit role and review of internal controls.

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Darylle Ann Matero
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241 views

Case Problem: Organizational Function and Role of Internal Audit Function

The document discusses two case problems - drawing an organizational chart for an oil company's functional areas, and the role of an internal audit function. For the second problem, it outlines perspectives from a CEO, CFO, audit committee member, external auditor, and Director of Internal Audits on establishing the internal audit function at a electronics company. The CEO wants to comply with regulations, the CFO wants the internal auditor to report to them and focus on financial issues, while the Director of Internal Audits argues for a broader operational audit role and review of internal controls.

Uploaded by

Darylle Ann Matero
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Case Problem: Organizational Function and Role of Internal

audit function

COLLEGE OF BUSINESS AND ACCOUNTANCY

CASE PROBLEMS

Case Problem 1 - Organization Functions

Based on Functional Areas of a Firm, draw a diagram of functional segments for an oil company
that has the following operations:

a. A head office in New York City Responsible for international and national marketing,
acquisition of leases and contracts and corporate reporting.

b. Two autonomous regional facilities in Tulsa, Oklahama and New Orleans, Louisiana. These
Facilities are responsible for oil exploration, drilling, refining, storage, and the distribution of
petroleum products to corporate service stations throughout the country and abroad.

Case Problem 2 - Role of Internal Audit Function

Nano Circuits Inc. is a publicly traded company that produces electronic control circuits, which
are used in many products. In an effort to comply with SOX, Nano is in the process of
establishing an in-house internal audit function, which previously had been outsourced. The
company began this process by hiring a Director of Internal Audits, Nano Circuits' CEO recently
called a planning meeting to discuss the roles of key corporate participants regarding the
implementation and maintenance of internal controls. Central to this decision is the
organizational placement of the future internal audit function and to whom the new Director of
Internal Audits should report. In addition, Nano Circuits considered the need to reconstitute its
Board of Directors Audit Committee. Participants at the meeting included the company
president, the chief financial officer, a member of the audit committee, a partner from Nano
Circuits external audit firm, and the Director of Internal Audits. Expectations and concerns
presented by the meeting participants are summarized next.

CEO: The CEO expressed concern that Nano Circuits complies with SOX and PCAOB
requirements and recommendations. The internal audit function should strengthen the
organization's internal control system by developing control policies and procedures and by
detecting violations of policies and procedures.
CFO: The CFO saw the role of the internal audit function as one that should be focused
primarily on financial issues, and therefore, the director of Internal Audits should report to the
CFO.

Audit committee member: The committee member felt strongly that the audit committee as
currently constituted is appropriate and no changes need to be made. Although none of the
committee members are trained accountants, they all have extensive industry experience, they
have all been associated with Nano Circuits in various capacities for many years, and they are
well qualified to fulfill their policy oversight responsibilities.

External audit partner: The external audit partner pointed out that the internal audit function
should be organized such that it supports a close working relationship with the external auditors.
This would include monitoring internal control systems on a continuing basis to provide a body
of evidence on which the external auditor can rely.

Director of Internal Audits: The Director of Internal Audits argued that the new internal audit
function should focus more on operational auditing issues, but it also should play a role in the
review of internal controls over financial reporting.

REQUIRED:

a. Describe the role that each of the following areas has in the establishment, maintenance,
and evaluation of internal control.

I. Management
II. External Auditor

III. Internal Audit

b. To whom should the Director of Internal Audits report? Explain your answer.

c. Comment on the audit committee member's perspective as to the committee's current


composition.

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