The internal auditor of G-BioSport realizes some unusual entries that have possibilities to bring about the sign of fraud because the entries are not compliant with GAAP. The internal auditor sends an email to the accounting manager of G-BioSport, who is currently in charge of those entries, in order to investigate further. However, Owen Silver, the accounting manager of G-BioSport, claims that G-BioSport’s accounting vice president, Kenneth Loeb, has personally authorized him to make the entries. Therefore, the internal auditor believes the accounting manager is likely to avoid the situation that he gets involved. In addition, the internal auditor does not want to overlook a potential problem.
Issues
How internal controls prevent …show more content…
Weak internal controls enable management to manipulate earnings and disclose false financial reports. To fix the problem generally, companies is required to have an objective and a competent internal auditor. According to AU section 332.03, internal auditors are responsible for providing analyses, evaluations, assurances, recommendations, and other information to the entity’s management and board of directors or to others with equivalent authority and responsibility. In addition, AU section 230.07 states that due professional care requires that the auditors exercise professional skepticism to assess risks of material misstatement and to investigate particularly fraudulent accounting practices. The auditors require using knowledge, skill, and ability to perform in good faith and with integrity as well as gathering objective evaluation of evidence. To obtain and maintain strong internal controls, the companies should establish independence of the board of directors and the audit committees, which are designed to monitor management’s performance. The board of directors has responsibility to oversee management’s decision-making and the audit committees perform to prevent and to detect false and misleading financial reports. Moreover, the companies should allow the internal auditors to communicate with the audit committees about any matters of concern without having to go through top management. It is critical that the board of directors and the audit committees must be independent of management in order to function properly and objectively and to avoid influence of