An organization’s internal audit department is usually considered an effective control mechanism

An organization’s internal audit department is usually considered an effective control mechanism for evaluating the organization’s internal control structure. The Birch Company’s internal auditing function reports directly to the controller. Comment on the effectiveness of this organizational structure.

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Expert Solution

Having the internal auditing function report to the controller is unacceptable. If the controller is aware of or involved in a fraud or defalcation, then he/she may give false or inaccurate information to the auditors. The possibility that the auditors may lose their jobs if they do not keep certain matters quiet also exists. Further, the fraud may be occurring at a level higher than the controller, and the controller may fear losing his/her job if the matter is pursued. The best route is to have the internal auditing function report directly to the board of directors.

Having internal auditing report to the controller risks fraud collusion; reporting directly to the board ensures independence and transparency.

Junaid answered 3 months ago

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