Situation The Internal Auditor example essay topic

The Act requires the CEO / CFO to certify They have reviewed the annual and quarterly reports Based on the officer's knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements not misleading Based on their knowledge the fairness of the financial statements and the financial information included in the quarterly reports, fairly represent the financial conditions and the results of the operations of the issuer during the period covered by the report. The design and implementation of internal controls, which would result in material information about the issuer and its subsidiaries being made known to the signing officers during the period of the report. Evaluation of the efficacy of such internal controls within 90 days prior to the report and their conclusions about the effectiveness of such controls. Disclosure of all deficiencies in the design and implementation of the internal control system to the external auditors as well as the audit committee and about any fraud whether material or not that has taken place by either employees or management who have a significant role to play in the internal control. Any changes to the internal control including any corrective action that to remove deficiencies or material weaknesses, that may have a material impact on the controls subsequent to evaluation. The penalty for false certifications is pretty stiff with fines ranging up to $1-$5 million and imprisonment for a period of 10-20 years depending upon the seriousness of the situation.

For restatements too the penalty is severe. The Act also requires the issuer to disclose to the public on current basis additional information regarding material changes in the financial condition or operations of the issuer. The related party disclosures require enhanced disclosures and filing in a way which enables real time access to the public. In this situation the internal auditor has been thrust into the spotlight.

The internal auditor is ideally placed to advise the issuer and the management about the process of designing such a system, which will achieve all the points stated above. The internal auditor is presented with a unique opportunity to show his mettle in providing inputs in designing the system since he has intimate knowledge about the various units of the issuer. Once implemented, the internal auditor by reviewing its effectiveness and suggesting improvements of the implemented controls can relieve much of the burden faced by the top management as a result of the certifications since a well entrenched internal control system has the potential of ripping many material frauds or misstatements in the bud and ensuring that the statements are fair. The rules also require that the officers not to coerce, influence or manipulate or mislead the auditors engaged in the auditing of the issuers financial statements.

There is always a threat that the auditors may fall prey to the coercion of the officers of the issuer. The act has potentially tried to rectify this situation by having the auditors report directly to the audit committee. The internal auditors are placed in a unique poison because of the intimate knowledge about the corporation and their access to the officers who can ensure that such actions are not repeated.