The limitation on professional responsibilities of CIAs when they are associated
ID: 2801177 • Letter: T
Question
The limitation on professional responsibilities of CIAs when they are associated with and financial statements are often misunderstood. These misunderstandings can be reduced substantially if CIAs carefully follow professional pronouncements in the course of their work and take other appropriate measures. Required: The following list describes for situation CIAs may encounter in their association with and preparation of unaudited financial statements. Briefly discuss the extent of the CIAs responsibilities and, if appropriate, the actions to be taken to minimize misunderstandings. Identify your answers to correspond with the letters in the following list. a. A CIA was engaged by telephone to perform accounting work including the compilation of financial statements. His client believes that the CIA has been engaged to audit the financial statements and examine the records accordingly. b. A group of business executives who own a firm managed by an independent agent engage Linda Lopez, a CIA, to compile quarterly unaudited financial statements for them. The CIA compiles the financial statements from information given to her by the independent agent. Subsequently, the business executives find the statements were inaccurate because their independent agent was embezzling funds. The executives refuse to pay the CIA’s fee and blame her for allowing the situation to go undetected, contending that she should not have relied on representations from the independent agent. c. In comparing the trial balance with the general ledger, a CIA finds an account labeled Audit Fees in which the client has accumulated the CIA’s quarterly billings for accounting services including the compilation of quarterly unaudited financial statements. d. To determine appropriate account classification. John Day, CIA reviewed a number of the client’s invoices. He noted in his working papers that some invoices were missing but did nothing further because he though they did not affect the unaudited financial statements he was compiling. When the client subsequently discovered the invoices were missing, he contended that he CIA should not have ignored the missing invoices when compiling the financial statements and had a responsibility to at least inform him that they were missing.
Explanation / Answer
CIAs working for a company review financial statements and audits it. SEC instructed all the publicly traded companies to perform internal audit after an interval to ensure that the organisation is following GAAP or country-specific accounting standards carefully.
Responsibilities of CIAs-
1. Internal Audit considers the key risk areas across the entire spectrum of business activities, which includes issues such as financial risk, reputation risk, the operating environment, growth and culture, as well as impact on the environment and employees. Internal Audit monitors and evaluates the adequacy and effectiveness of the System of Internal Control within the Institute.
2. Internal Audit plans are approved by the Audit Committee and audit staff present reports on the work of internal audit to the Audit Committee at every meeting. An Annual Report is prepared to summarise and to highlight significant control and risk issues.
3. Internal audit provides a consulting service for Management to aid the identification of risks and makes recommendations to management about improving the operational, financial and governance control systems with a view to attaining best value for money in DIT.
4. Internal Audit is required to deliver impartial and unbiased judgements. To enhance this objectivity, Internal Audit will remain independent of the activities audited.
5. Internal Audit abides by the Code of Ethics and International standards laid down by the Institute of Internal Auditors.
The actions to be taken for appropriate measures are-
1. Preparing an annual audit plan
2. Conducting internal audit planning and an opening meeting
3. Then in the audit process scrutinizing every financial analysis statements, Invoices , ledger, journal etc to review the internal control structure.
4. Then the transaction testing and informal communication.
5. Finally draft a audit report indentifying the risky areas, the findings etc.
6. Conducting a closing meeting and disseminate the report.
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