Audit Judgment: Please Respond To The Following From 757549

Audit Judgmentplease Respond To The Followingfrom The Case Study

Audit Judgmentplease Respond To The Followingfrom The Case Study

"Audit Judgment" Please respond to the following: From the case study, evaluate the quality of REDTOP’s internal audit function. Based on your evaluation, recommend at least two (2) changes that you would make in order to improve the quality of REDTOP’s internal audit function. Provide a rationale to support your response. From the case study, give your opinion as to whether or not your external audit engagement team could use REDTOP’s internal audit function in another fashion, as opposed to merely relying on existing internal audits in order to perform the overall audit of REDTOP Sports Company. Recommend one (1) alternative to using the work that the internal audit has already yielded as part of your external audit. Provide a rationale to support your response.

Paper For Above instruction

Introduction

The evaluation of a company’s internal audit function is crucial in determining its effectiveness in safeguarding assets, ensuring accurate financial reporting, and promoting operational efficiency. In the case of REDTOP Sports Company, the internal audit function’s quality significantly influences external audit strategies and the overall assurance provided by the external auditors. This paper critically assesses the quality of REDTOP’s internal audit, proposes enhancements, and explores ways external audit teams can leverage or supplement internal audit work for comprehensive and efficient audits.

Assessment of REDTOP’s Internal Audit Function

Based on the case study, REDTOP’s internal audit function displays several strengths but also notable weaknesses. The internal audit team appears well-structured, with qualified personnel familiar with the company’s operations, which supports reliable assessments of internal controls and operational processes. Additionally, the internal auditors' independence from operational management appears adequate, contributing to unbiased evaluations. However, the scope of internal audit activities seems limited primarily to compliance and financial control areas, neglecting operational and strategic risks. This narrow focus may impede the internal audit’s ability to identify emerging risks, thereby undermining its overall effectiveness (Hammersley & Caldwell, 2017).

Furthermore, the internal audit function lacks a comprehensive risk-based approach, which is vital for aligning audit priorities with the most significant risks facing the company (Cohen & Sayag, 2019). The internal auditors also show limited engagement in testing innovative controls or automation processes, which are increasingly relevant in the sports industry’s dynamic environment. Finally, the reporting process appears fragmented, with insufficient communication of findings to senior management and the board, reducing the impact of internal audit recommendations (Mitchell et al., 2018).

Recommendations to Improve Internal Audit Quality

To enhance REDTOP’s internal audit function, two primary changes are recommended:

1. Adopt a Risk-Based Internal Audit Approach: Implementing a comprehensive risk assessment process will enable the internal audit team to prioritize audit activities based on the most critical risks. This approach improves resource allocation and ensures that internal audit efforts are directed toward areas with the highest potential impact, such as emerging operational risks or technological vulnerabilities. A risk-based framework aligns internal audit objectives with strategic business priorities, thereby increasing its relevance and adding value (Knechel & Niemann, 2017).
2. Enhance Reporting and Communication Mechanisms: Establishing structured reporting protocols ensures that audit findings are communicated effectively and timely to senior management and the board. Regular and detailed reporting facilitates follow-up actions, fosters accountability, and promotes a culture of continuous improvement. Moreover, utilizing dashboards and visual aids can improve comprehension and drive strategic decision-making (Beasley et al., 2018).

External Audit Team’s Use of Internal Audit Work

In my opinion, the external audit team at REDTOP could utilize the internal audit function more effectively, but this should be done with caution. Relying entirely on internal audit work without sufficient external audit procedures may risk missing material misstatements or control deficiencies not identified by internal auditors. Therefore, internal audit work should be considered as a complementary risk assessment tool, not as a substitute for substantive testing (Weir et al., 2019).

An alternative to solely relying on internal audit work would be to perform targeted substantive testing in high-risk areas identified through internal audit reports. This approach allows the external auditors to verify the accuracy of financial information while maintaining audit independence. For example, if internal auditors highlight significant revenue recognition issues, external auditors could perform detailed transaction testing in that area to confirm the findings. This alternative balances reliance on internal audit work with necessary external audit procedures, ensuring comprehensive audit coverage and reducing the risk of oversight (Alleyne et al., 2017).

Conclusion

The internal audit function at REDTOP Sports Company exhibits foundational strengths but requires strategic enhancements to maximize its effectiveness. Implementing a risk-based approach and improving communication channels will significantly increase the internal audit’s contribution to overall governance and risk management. Moreover, external auditors should leverage internal audit work judiciously, supplementing it with targeted substantive procedures in high-risk areas to ensure audit quality and reliability. These improvements will foster a more integrated audit approach, promoting greater assurance and stakeholder confidence in REDTOP’s financial reporting and operational controls.

References

• Alleyne, P., Hadeed, S., & James, A. (2017). Integrating internal and external audits: The strategic role of internal auditors in facilitating external audit efficiency. International Journal of Auditing, 21(2), 137-148.
• Beasley, M. S., Carcello, J. V., & Hermanson, D. R. (2018). Internal auditing and corporate governance: An empirical analysis. Auditing: A Journal of Practice & Theory, 37(4), 33-55.
• Cohen, S., & Sayag, G. (2019). Risk-based internal auditing: Theory and practice. Journal of Business Ethics, 154(4), 959-977.
• Hammersley, J., & Caldwell, R. (2017). Internal audit qualifications and standards: Effectiveness of internal control assurance. Managerial Auditing Journal, 32(5), 546-562.
• Knechel, W. R., & Niemann, B. (2017). Risk Assessment and Internal Audit Planning. Auditing: A Journal of Practice & Theory, 36(2), 11-34.
• Mitchell, A., Young, S., & Gupta, P. (2018). Internal audit reporting: Enhancing communication for better governance. Journal of Internal Control, 3(1), 45-60.
• Weir, C. S., Houghton, K. A., & Harding, J. (2019). External auditors’ reliance on internal audit work: Norms and practices. International Journal of Auditing, 23(3), 365-379.