( ROLE OF INTERNAL AUDIT

FUNCTION )

CASE 1: NANO CIRCUITS

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.

2.

3.

4.

Understand the flow of transactions, including IT

aspects, in sufficient detail to identify points at which
a misstatement could arise.
Using a risk-based approach, assess both the design
and operating effectiveness of selected internal
controls related to material accounts.
Assess the potential for fraud in the system and
evaluate the controls designed to prevent or detect
fraud.
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)
Bondoc, Jessa Krizzel D.
Chancoco, Maria Jasmine Rhei A.
Gonzales, John Kenneth M.
Lauricio, Helena Marie Q.
Manalese, Aarone Jan T.