The Need for an Internal Auditor

During our recent audit, we have determined the internal controls of your company to be deficient. The deficient internal controls include controls over cash, inventory, purchasing, and revenues. Currently, your company is a privately held business not subject to the rules of Sarbanes-Oxley Section 404, however, the company is a looking to make and initial public offer on the stock exchange in the next five years. With this knowledge, we believe that you should hire and internal auditor.

Why Hire an Internal Auditor?

Since the company has many deficient internal controls, the primary job of the internal auditor will be to establish the controls. Since the company is large, the internal auditor needs to be able hire a staff of experienced auditors. The internal audit function is a requirement for all companies to be listed on the New York Stock Exchange. As discussed in earlier conversation, the company wishes to make an initial public offering of stock to expand the company to increase production facilities and establish new products in the future. In making an IPO, a public traded company must register with the Securities Exchange Commission. The SEC standards for the companies registered with the commission require the companies to submit auditor financial statements. As the external auditor, I will have to examine and report any deficiencies of internal controls to management. If the deficiencies are not resolved by the closing of the audit engagement, I will not be able to offer an unqualified opinion of the financial statements according to general accepted auditing standards. If I am unable to offer an unqualified opinion on the financial statements, the registration with the SEC will be voided. In addition to the audit report and registration with the SEC, a new requirement has been imposed by Sarbanes-Oxley (SOX). Under SOX, the top management of a publicly traded company must certify to the external auditor that the internal controls of the...