ACC653 Internal Auditing

Remember the following definitions as you complete the requirements under Scenario 1 Activities 1 below:

Business Objective: To demonstrate sound ethical conduct in everything we do.

Business Risk: Disregard for sound ethical principles, either intentional or unintentional, may cause managers and employees to cut corners, embellish performance results, misuse company resources, or otherwise act in a manner that harms the company and its stakeholders.

Use the business objective and business risk stated above as the basis for answering the following questions. As he or she deems necessary cenario 1 Activities 1.

Management asserts that entity-level controls are designed adequately and operating effectively to reduce the above stated risk to an acceptably low level. Identify the key entity-level controls you expect to find in place if management’s assertion is true. Keep in mind that entity-level controls may exist in any of the five COSO components of internal control (control environment, risk assessment, controls, information and communication, and monitoring).

Study the scenario presented below about SHR Corporation’s.

SHR Corporation has a reputation of sound ethical conduct. In recent years, however, the company has not had to deal with an economic downturn, the level of new competition it is now facing, or the decreasing profitability it has experienced during the first two quarters of 2018.

Three years ago, the company put in place a comprehensive, written code of conduct (the Code) that is applicable to directors, management, and employees.

 

The Code is posted on the organization’s website and intranet.

 

All new employees receive a copy of the Code when they are hired and participate in orientation training that includes coverage of the Code. Some minor revisions were made to the Code during the first few months after its introduction, but no changes have been made since then.

a. Identify the strengths and weaknesses in SHR Corporation’s entity-level controls over the company’s ethics program.

 

Be sure to consider both governance and management-oversight controls. Propose specific recommendations to rectify the weaknesses noted. Based on the information provided, formulate an overall conclusion about the effectiveness of SHR’s entity-level controls over its ethics program.

b. Discuss how the entity-level controls relating to the company’s ethics program might affect senior management’s decisions given the nature of the risks the company now faces. Provide some examples.

c. Discuss how the entity-level controls relating to the company’s ethics program might affect managers’ and employees’ behavior at the business process level. Provide some examples.

d. Discuss how SHR’s entity-level controls over the company’s ethics program may impact your subsequent audit of controls over the company’s purchases and accounts payable process. More specifically, discuss how your conclusion would affect your:

1. Professional skepticism.

2. Assessment of process-level inherent risks.

3. Approach to evaluating the design adequacy of process-level controls.

4. Inclination to perform direct tests of transactions in search of indirect evidence to support your conclusion about the design adequacy and operating effectiveness of process-level controls.