Let me pose a hypothetical case as it relates to Sarbanes Oxley 404 compliance. Suppose that...

Let me pose a hypothetical case as it relates to Sarbanes Oxley 404 compliance. Suppose that in the course of their review, the external auditors copy the compliance testing workpapers which were prepared by members of the Internal Audit staff.

After issuing an unqualified opinion, a financial scandal erupts in the company, triggering a shareholder lawsuit. During discovery, the external auditors state that they relied on the workpapers of Internal Audit. While this will not be a defense for the external auditors, the attorney tracks down the Internal Audit staff member whose initials appear on the original workpaper stating the procedures were adequate and effective. This staff member also happens to be a CPA and/or CIA.

What is the possibility that this individual staff internal auditor (not a corporate officer or Audit Director) can be named as a party to the lawsuit and be held personally liable on the basis that as a certified professional he had a higher responsibility to ensure that the information was correct. Is this something we should be considering before allowing the external auditors to copy our workpapers?

Taken from auditnet discussions

Expert Solution

Internal auditor has responsibility to provide assurance on effectiveness of risk management and internal control system.Internal auditors had a responsibility to ensure that information is correct.In case he is found guilty of professional misconduct,he is personally liable to pay damages.

Before using the work of internal auditor ,external auditor shall consider

External auditor shall examine Internal auditor's technical competence.
External auditor ascertain that internal auditor have performed his work with due diligence & professional care.
To what extent work of Internal auditor can be used.
Objectivity of internal audit function.
Nature,Timing,Extent of procedures performed by Internal Auditor.

External auditor shall perform audit procedures to ensure that

Proper documentation is maintained.
Sufficient & appropriate audit evidence has been obtained by Internal auditor.
Report of Internal auditor is consistence with working papers.

ekkarill92 answered 2 years ago

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