Auditors Have Come Into A Department As Part Of A Company

Auditors Have Come Into A Department As Part Of A Company Wide Audit P

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 as outlined in the Ashford Writing Center, and it must include citations and references for the text and at least two scholarly sources.

Paper For Above instruction

Introduction

In the context of ongoing corporate accountability and financial transparency, audits play a fundamental role in verifying the accuracy and integrity of a company’s financial statements. When auditors visit a department as part of a comprehensive company-wide audit, staff members can expect a detailed review of financial processes, controls, and records. This process ensures compliance with regulatory standards and helps the company secure a trustworthy financial reporting framework. Additionally, the Sarbanes-Oxley Act (SOX) enforces specific requirements that shape the auditors' procedures, emphasizing transparency, internal controls, and accountability.

What Auditors Do During a Departmental Inspection

Upon their arrival, auditors typically begin by introducing themselves to department staff and explaining their purpose and scope of the audit. They will review internal controls over financial reporting, which involves testing processes designed to prevent errors or fraud. This step is crucial because strong controls underpin reliable financial data and facilitate compliance with regulatory requirements.

Auditors also examine various financial records, such as transaction logs, invoices, bank reconciliations, and ledger entries, to verify their accuracy and proper documentation. They perform substantive testing by sampling transactions to confirm their validity and adherence to established policies. During this process, staff might be asked to provide supporting documentation, clarify procedures, or demonstrate system workflows, especially related to revenue recognition, expenses, and asset management.

The auditors assess whether the company's internal control environment aligns with accepted accounting standards and regulatory mandates. If deficiencies are identified, auditors are required to report them and suggest remedial actions. The ultimate goal is to ensure that financial reports accurately reflect the company’s economic activities and are free from material misstatements.

Regulatory and Legislative Requirements Under the Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 significantly impacted how audits are conducted, particularly emphasizing the importance of internal controls. Section 404 of SOX mandates management to assess and report on the effectiveness of internal controls over financial reporting annually. Auditors are responsible for independently attesting to these assessments, which involves testing the controls' design and operational effectiveness.

Staff should expect auditors to evaluate the department’s compliance with SOX requirements by examining control documentation, testing control activities related to financial reporting, and identifying any control weaknesses. This process ensures that management's assessments are accurate and that financial data is reliable. Compliance with SOX also entails maintaining transparent records, safeguarding assets from fraud, and fostering a culture of ethical financial reporting.

Furthermore, SOX introduced rules to increase accountability among executive management and the board. Staff may observe auditors reviewing documentation that supports management’s certifications or scrutinizing processes that demonstrate management's oversight responsibilities. These measures aim to prevent corporate fraud and enhance the accountability of financial disclosures.

Conclusion

Overall, staff members should expect auditors to conduct a thorough review of financial processes, internal controls, and documentation. The audit process is designed not only to verify financial accuracy but also to ensure compliance with legal requirements such as the Sarbanes-Oxley Act. Cooperation with auditors by providing accurate information and understanding the audit procedures can facilitate an efficient review process, ultimately supporting the company’s commitment to transparency and integrity in financial reporting.

References

American Institute of Certified Public Accountants. (2020). Auditing and Assurance Services: An Integrated Approach. Pearson Education.

Cohen, J., & Hwang, L. S. (2019). The Impact of the Sarbanes-Oxley Act on Corporate Internal Controls. Accounting Horizons, 33(4), 59-77.

Public Company Accounting Oversight Board. (2022). Auditing Standard No. 3101: the Auditor's Report on Internal Control Over Financial Reporting. PCAOB.

Rittenberg, L., Johnstone, K., & Gramling, A. (2021). Auditing: A Risk-Based Approach. Cengage Learning.

Securities and Exchange Commission. (2004). Release No. 33-8238: Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports. SEC.

Wells, J. T. (2018). Auditing: Risk-Based Approach. Pearson Education.