Role of Internal Audit Function

Nano Circuits Inc, is a publicly traded company that produces electronic control circuits, which are used in many products. In an effort to comply with SOX, Nano is in the process of establishing an in-house internal audit function, which previously had been outsourced. The company began this process by hiring a Director of Internal Audits. Nano Circuits’ CEO recently called a planning meeting to discuss the roles of key corporate participants regarding the implementation and maintenance of internal controls. Central to this decision is the organizational placement of the future internal audit function and to whom the new Director of Internal Audit should report. In addition, Nano Circuits considered …show more content…

Martin Stevens the CEO wants to ensure that Technical Solutions complies with the SOX and that the internal audit department is structured such that it strengthens the company’s internal control system. Also, an overarching objective for the reorganized audit function is that the external auditors are able to rely on the work performed by the internal audit department to a substantial degree. Arguments put forth by interested parties as to where the IA department should be organizationally located are presented below:
Chief Operations Officer (COO). John Sweeney, the COO of Technical Solutions, believes that the Director of IA should report to him. Under this arrangement the IA staff members would be involved in the preparation of policy statements on internal control regarding safeguarding of assets and in the design of business processes.
Chief Information Officer (CIO). Larry Rich, the CIO, has pushed hard to have the IA function report to him and take on an active role in the design, installation, and initial operation of a new computerized systems. IA staff will be primarily concerned with the design and implementation of internal accounting controls and conduct the evaluation of these controls during the test runs and audits.
Corporate Controller. The controller, Linda Johnson, believes the IA group should remain within her functional area. Currently the IA staff performs a number of