Question

Read the following Internal Audit Section of LDC Cloud Sytems Case study and answer the question:...

Read the following Internal Audit Section of LDC Cloud Sytems Case study and answer the question:

INTERNAL AUDIT
CFO Arizmendi had hired Scott Tensar during the
run-up to the IPO for the purpose of creating and
heading the internal audit function, and Tensar
had continued to report directly to Arizmendi since
that time, with a secondary reporting relationship
to the board’s audit committee. Tensar, who was
well-qualified for the position, was responsible for
providing assurance that LDC’s major risks were
being appropriately addressed including financial,
operational, and reporting. This included reviewing
LDC’s internal control over financial reporting (ICFR)
that was designed to address the risk of fraud.
Tensar and his team had tested these controls and
provided assurance that they were designed and
operating effectively.
Tensar felt that his internal audit team possessed the
skills and experience that were typical for a billiondollar
company. The problem he faced, however,
was that he had a wide scope of risks to address.
Further, LDC’s business model was more complex
than was typical given the variety of customer
payment models the company pursued, and LDC
was growing rapidly and engaging with customers in
unusual ways because much of what was happening
at the intersection of cloud computing and the
sharing economy was unchartered territory for any
technology company. There were few models for the
company to follow. In Tensar’s view, it seemed like
everything his team reviewed was more complicated
and took a bit longer than he expected.
Tensar had requested a larger budget this past
year so he could hire two additional experienced
auditors for his team, but Arizmendi denied the
request. At the time Arizmendi told Tensar, “If the
company meets its current year growth targets, I will
recommend that internal audit get more people,” but
then added: “With the pressure we are under now,
there is no chance that LeDuc will approve more
staffing for support functions.”
Tensar had wanted the larger team so he could keep
up with all that was happening and to enable some
extra time for training and professional development.
At current staffing levels, there was hardly time for
him, or members of his team, to catch their breath.
Tensar also wanted time to be able to plan ahead.
He was sure that LDC’s internal audit function
was doing the best it could with its resources, but
he was concerned that the risks coming from the
company’s unique business model needed more
attention. Tensar recalled a recent conversation with
Arizmendi:
Tensar: “I wish I had more time to stop and think.
We complete an annual fraud risk assessment
but do we miss anything? If someone wanted to
commit accounting fraud here, how would they
do it? Are there weaknesses in our accounting
systems that I am not aware of?”
Arizmendi: “Because of our business model, our
finance and accounting systems are so unusual
that most of our own people can’t figure them out.
I doubt someone could learn enough to commit a
material fraud without being detected.”
Tensar: “You could be right,” he said, reluctantly
agreeing. “I have not seen any sign of accounting
fraud, but you can’t be too careful. By the way,
Lester Darnal (audit committee chair) stopped by
again last week. I like him. He shows real interest
in what we are doing and is always asking good
questions.”
Arizmendi: “Yes, Lester knows his stuff and he
loves to always know what is going on. Just be
careful with what information you volunteer. We
need to get our own work done, and the board
sometimes has its own agenda.”

Question:

What improvements would you recommend for the LDC internal audit function?

Homework Answers

Answer #1

I would recommend the following improvements for the LDC internal audit function:

- Training workshops to get the audit team accustomed to cloud computing and other techniques should be conducted.

- Since Tensar feels that the team is understaffed, he should inform the chair of the audit committee.

- Tensar should have a free flowing conversation with chair of the audit committee clearly disclosing all the facts.

- Tensar should re evaluate his independence as an auditor and chart a new aggressive audit plan.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
IReading the following Internal audit section of the LDC Cloud Systems Case Study: NTERNAL AUDIT CFO...
IReading the following Internal audit section of the LDC Cloud Systems Case Study: NTERNAL AUDIT CFO Arizmendi had hired Scott Tensar during the run-up to the IPO for the purpose of creating and heading the internal audit function, and Tensar had continued to report directly to Arizmendi since that time, with a secondary reporting relationship to the board’s audit committee. Tensar, who was well-qualified for the position, was responsible for providing assurance that LDC’s major risks were being appropriately addressed...
Read the LDC Cloud Systems Case Study and answer the question below: THE EMAIL The email...
Read the LDC Cloud Systems Case Study and answer the question below: THE EMAIL The email had been sent from one mid-level accounting manager at headquarters to another about six months earlier. The message read: Bill, here are the accounting issues I mentioned, and as you know, some of these go back a ways. The data that supports these accounts are not always clear and keep changing, and we are not sure what the correct accounting treatment is for these...
Each of the following could describe why there can be audit failure except? Inadequate internal accounting...
Each of the following could describe why there can be audit failure except? Inadequate internal accounting and control systems The possibility that the existing disclosure rules have loopholes and some questionable financial practices are not disclosed In their quest to keep clients, the auditor may be convinced by their clients to allow some questionable reporting practices When individuals collude, they can often overcome internal controls and perpetuate an undetected fraud, at least for a period of time An accounting and...
Read the case below and given the knowledge you have obtained from this case study, what...
Read the case below and given the knowledge you have obtained from this case study, what factors are critical to a professional auditor properly applying professional skeptisim? Case Study A — Not Just a Trivial Item I joined a Big Four accounting firm straight out of college a few years ago as a staff accountant. My first assignment on an audit engagement was a learning experience I would never forget; it was a practical lesson perhaps even more valuable than...
CASE 1 You are the internal audit senior responsible for conducting an assurance engagement of the...
CASE 1 You are the internal audit senior responsible for conducting an assurance engagement of the XYZ Company payroll process. This process has not been audited for three years and, as such, is due in the normal audit cycle. There have been no significant changes since the previous audit, that is, there were no system changes, no reorganization of personnel, and no substantive procedural changes. However, during the last assurance engagement, the internal audit function identified several observations, some of...
Case Study In December 2016, Arshad Ali joined Imperial Computers Ltd. (ICL) as a Senior Programmer,...
Case Study In December 2016, Arshad Ali joined Imperial Computers Ltd. (ICL) as a Senior Programmer, with a handsome pay. Prior to this job, he worked successfully as an assistant programmer in Gem Computers (Gem). Arshad felt that ICL offered better career prospects, as it was growing much faster than Gem, which was a relatively small company. Although Arshad had enjoyed working there (at Gem), he realized that to grow further in his field, he would have to join a...
Review the General Electric case study from the Chapter 13 Reading. Answer the following question: What...
Review the General Electric case study from the Chapter 13 Reading. Answer the following question: What do you think brought individuals at GE together to work as a cohesive team? In Durham, North Carolina, Robert Henderson was opening a factory for General Electric Company (NYSE: GE). The goal of the factory was to manufacture the largest commercial jet engine in the world. Henderson’s opportunity was great and so were his challenges. GE hadn’t designed a jet engine from the ground...
what is the issue in Emaar case study ? (10marks) Emaar Properties specializes in creating value-added,...
what is the issue in Emaar case study ? (10marks) Emaar Properties specializes in creating value-added, master-planned communities that meet the full spectrum of lifestyle needs. Highlights include Downtown Dubai, the 500-acre mega-project including Burj Khalifa – the world’s tallest building, and The Dubai Mall—the world’s largest shopping and entertainment destination. Emaar is extending its expertise in developing master-planned communities internationally, and has established operations in the United Arab Emirates, Saudi Arabia, Syria, Jordan, Lebanon, Egypt, Morocco, India, Pakistan, Turkey,...
In a bizarre twist to a bizarre story, on October 22, 2013, Deloitte agreed to pay...
In a bizarre twist to a bizarre story, on October 22, 2013, Deloitte agreed to pay a $2 million penalty to settle civil charges—brought by the PCAOB—that the firm violated federal audit rules by allowing its former partner to continue participating in the firm’s public company audit practice, even though he had been suspended over other rule violations. The former partner, Christopher Anderson, settled with the PCAOB in 2008 by agreeing to a $25,000 fine and a one-year suspension for...
The following audit report was drafted by a trainee on the audit of Golf (Pty) Ltd...
The following audit report was drafted by a trainee on the audit of Golf (Pty) Ltd (“Golf”), a company which manufactures golf clubs. The trainee was asked to draft the report at the conclusion of the audit for the financial year end 31 March 2017 as part of on-the-job training and you have to evaluate his report. The shareholders of Golf included a clause in the company’s Memorandum of Incorporation which requires that the company’s annual financial statements are extremely...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT