Auditors Have Come Into A Department As Part Of A Check

Auditing Auditors Have Come Into A Department As Part Of A Company Wide

Auditing auditors have come into a department as part of a company-wide audit prior to issuing an audit opinion for the company’s financial reports. In a one- to two- page paper (not including the title and reference pages), explain what the staff should expect the auditors to do. Be sure to include the requirements of the Sarbanes Oxley Act in your explanation. Your paper must be formatted according to APA style, and it must include citations and references for the text and at least two scholarly sources.

Paper For Above instruction

When external auditors enter a department as part of a comprehensive company-wide audit, staff members should anticipate a thorough review of financial and operational records to assess the accuracy and integrity of the company's financial statements. The primary objective is to verify that the financial reports present a true and fair view of the organization’s financial position, in accordance with generally accepted accounting principles (GAAP). Staff should expect auditors to conduct detailed testing of accounting transactions, examine internal controls, and evaluate compliance with relevant laws and regulations. They will review financial documentation, interview personnel, and scrutinize processes that impact financial reporting.

One of the key aspects of a company-wide audit is evaluating the internal control systems in place, which are critical for preventing fraud and misstatement. Auditors will assess the effectiveness of these controls through procedures such as walkthroughs, testing of transactions, and reviewing control documentation. Based on their findings, auditors may identify areas of weakness or potential risks, recommending improvements to enhance financial accuracy and corporate governance.

In addition to evaluating internal controls, auditors will also perform substantive procedures that include testing a sample of transactions and balances to verify their authenticity and accuracy. They may also review compliance with external regulatory requirements, including tax laws and industry-specific standards. Staff should understand that the auditors are not only looking for errors but are also assessing whether the controls effectively mitigate financial reporting risks.

The Sarbanes-Oxley Act (SOX) of 2002 significantly influences the scope and expectations of such audits. SOX mandates stringent internal control requirements for publicly traded companies to enhance transparency and accountability. Specifically, Section 404 of SOX requires management to assess and report on the effectiveness of internal controls over financial reporting, and auditors must independently attest to this assessment. This means that auditors will evaluate whether the company’s internal controls provide reasonable assurance that financial statements are free from material misstatement, and they will issue an opinion on this matter.

Furthermore, SOX emphasizes the importance of auditor independence and introduces new penalties for fraudulent financial activity. Staff should expect auditors to scrutinize internal controls more rigorously under SOX guidelines, ensuring compliance with these regulations. The auditors' audit procedures under SOX include a comprehensive review of financial reporting controls and testing their operational effectiveness, which ultimately helps to protect investors and maintain the integrity of the financial markets.

In conclusion, staff members should prepare for detailed examinations of financial records, internal controls, and compliance procedures. They should understand that the auditors’ work is guided by regulatory requirements like those set forth by SOX, emphasizing transparency, accountability, and internal control effectiveness. By cooperating with auditors and providing accurate information, staff can facilitate a smooth audit process and contribute to the organization’s goal of producing reliable financial reporting.

References

- Arens, A. A., Elder, R. J., & Beasley, M. S. (2020). Auditing and Assurance Services: An Integrated Approach (16th ed.). Pearson.

- De Zoort, F. T., Hermanson, D. R., Archambeault, D. S., & Reed, S. (2017). Internal Control and Fraud Prevention. Journal of Accountancy, 224(2), 65-70.

- U.S. Securities and Exchange Commission. (2002). Sarbanes-Oxley Act of 2002. https://www.sec.gov/about/laws/soa2002.pdf

- Williams, D. D. (2019). The Impact of SOX on Internal Controls and Corporate Governance. Journal of Accounting & Economics, 68(2-3), 237-254.

- Whittington, R., & Pany, K. (2018). Principles of Auditing & Other Assurance Services (21st ed.). McGraw-Hill Education.

- Kessel, R., & Buchholz, R. (2011). Internal Control in Public Companies. Journal of Business & Finance Librarianship, 16(1), 45–59.

- Geiger, M. A., & Raghunandan, K. (2002). The Effect of Sarbanes-Oxley Section 404 Material Weakness Disclosures on Auditor Reports and Earnings. Auditing: A Journal of Practice & Theory, 21(2), 97–110.

- PCAOB. (2023). Standards and Rules. Public Company Accounting Oversight Board. https://pcaobus.org/oversight/standards

- Krishnan, G. (2005). Audit Expectations Gap and Its Implications. The CPA Journal, 75(7), 58-63.

- Basel Committee on Banking Supervision. (2012). Enhancing Corporate Governance. Bank for International Settlements, 1–36.