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AUD 1206 Case Analysis Number 1

The internal audit department of Bes Corporation recently audited its Bhiee Division and found three issues: 1) One department had excessive employee turnover due to unrealistic performance standards and lack of training. 2) A new computer system was unable to perform all needed functions. 3) A product redesign was made to address a potential safety defect after some user injuries, but it is unclear if the defect caused the injuries. The internal audit department reports to the controller, and audit reports are sent to Bes' board of directors.

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307 views1 page

AUD 1206 Case Analysis Number 1

The internal audit department of Bes Corporation recently audited its Bhiee Division and found three issues: 1) One department had excessive employee turnover due to unrealistic performance standards and lack of training. 2) A new computer system was unable to perform all needed functions. 3) A product redesign was made to address a potential safety defect after some user injuries, but it is unclear if the defect caused the injuries. The internal audit department reports to the controller, and audit reports are sent to Bes' board of directors.

Uploaded by

Brian Go
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Mark Anecito R.

Perlas, CPA
AUD 1206 Operations Auditing

CASE ANALYSIS Number 1

Bes Corporation has an internal audit department operating out of the corporate headquarters.
Various types of audit assignments are performed by the department for the eight divisions of the
company. The following findings resulted from recent audits of Bes Corporation’s Bhiee Division:

1. One of the departments in the division appeared to have an excessive turnover rate. Upon
investigation, the personnel department seemed to be unable to find enough workers with the specified
skills for this department. Some workers are trained on the job. The departmental supervisor is held
accountable for labor efficiency variances but does not have qualified staff or sufficient time to train the
workers properly. The supervisor holds individual workers responsible for meeting predetermined
standards from the day they report to work. This has resulted in a rapid turnover of workers who are
trainable but not yet able to meet standards.

2. The internal audit department recently participated in a computer feasibility study for this division. It
advised and concurred on the purchase and installation of a specific computer system. Although the
system is up and operating, the results are less than desirable. The software and hardware meet the
specifications of the feasibility study, but there are several functions unique to this division that the
system has been unable to accomplish. Linking of files has been a problem. For example, several vendors
have been paid for materials not meeting company specifications. A revision of the existing software is
probably not possible, and a permanent solution probably requires replacing the existing computer
system with a new one.

3. One of the products manufactured by this division was recently redesigned to eliminate a potential
safety defect. This defect was discovered after several users were injured. At present, there are no
pending lawsuits because none of the injured parties has identified a defect in the product as a cause of
the injury. There is insufficient information to determine whether the defect was a contributing factor.

The director of internal auditing and assistant controller is in charge of the internal audit
department and reports to the controller in corporate headquarters. Copies of internal audit reports are
sent routinely to Bes’ board of directors.

Requirements:

1. What are the procedures to be done in terms of fieldwork stage of an internal auditor as a
response to audit finding number 1 (excessive turnover)?

2. What are your possible recommendations as an internal auditor as a response to audit finding
number 1 (excessive turnover)?

3. Based on the case, are there any objectivity problems with Bes Corporation? Explain.

4. What if the internal audit department is part of the corporation's controllership function, and
copies of the internal audit reports are sent to the board of directors, evaluate the appropriateness of
the location of the internal audit department within Bes’ organizational structure.

5. Who are those within Bes should receive the reports of the internal audit department?

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