Part A
- Read the Executive Summary on pages 3-9.
- Read pages 16-21, beginning at “Definition of Enterprise Risk Management”.
- Read “Components of Risk Management” on page 22.
- Read chapter 2 “Internal Environment” pages 27-34.
- Read the following information about Go-Go Corporation.
- Determine how each of the issues at Go-Go relates to one or more of the eight factors of the internal environment (NOT components of COSO.)
- Factors of internal environment include risk management philosophy, risk appetite, board of directors, etc.
Some issues relate to only one factor, some relate to more than one factor. If you believe more than one factor of internal environment applies to a specific issue, then also identify which factor is the
most relevant choice.
You should begin (or continue) to connect and relate topics covered previously to the current topics under discussion. For example, although this assignment primarily relates to COSO Internal Environment, you should also consider the issues in relation to what you know about SOX, fraud and business processes.
I’ve completed issue “a” as an example.
Go-Go Corporation
You are an audit supervisor assigned to perform due diligence on a potential new attest client, Go-Go Corporation. Go-Go began as a family-owned business many years ago, and went public last year. Go-Go’s stock is listed on the New York Stock Exchange. To facilitate planning the audit engagement, you recently toured Go-Go’s headquarters, interviewed key management personnel and reviewed existing documentation. You discovered the following issues.
- The financial vice-president and budget director hold seats on the audit committee of the Board of Directors.
This issue best reflects a problem with the board of directors factor of the internal environment. COSO suggests the BOD should be comprised of a majority of independent outside directors. Furthermore, SOX prohibits corporate management or other employees to hold seats on the audit committee of the board of directors. A company with management on the board of directors may also have problems with corporate structure.
We will not be able to continue audit planning or work until the financial vice-president and budget director resign from the audit committee and are replaced by independent directors.
- Prior to being hired, the treasurer was an assistant to a politician. The politician was convicted of fraud shortly after the treasurer joined Go-Go.
- Management desires to change depreciation methods from accelerated to straight-line. Management implied that if your firm doesn’t agree with the method change, management may need to find different auditors.
- The internal audit staff report to the financial vice-president.
- The top three executives (CEO, president and financial vice-president) are brothers.
- Formal performance evaluations are counterproductive. Therefore, employees are evaluated on an informal, subjective basis.
Part B
- Read the following information about Go-Go Corporation.
- Determine how each of the issues at Go-Go relates to one or more of the eight factors of the internal environment (NOT components of COSO.)
- Factors of internal environment include risk management philosophy, risk appetite, board of directors, etc.
Some issues relate to only one factor, some relate to more than one factor. If you believe more than one factor of internal environment applies to a specific issue, then also identify which factor is the
most relevant choice.
You should begin (or continue) to connect and relate topics covered previously to the current topics under discussion. For example, although this assignment primarily relates to COSO Internal Environment, you should also consider the issues in relation to what you know about SOX (Sarbanes- Oxley), fraud and business processes.
- Go-Go has reported increases in EPS for each of the past six years. However, earnings during the current year have leveled off and may decline.
- Go-Go has written policy and procedures manuals for customer, vendor and employee relations. The policies and procedures appear adequate and typical.
- The new information systems project for an enhanced network firewall appeared to be on a very aggressive implementation schedule. When interviewed, the IT manager said that even if he put all the IT employees on the project full-time for the next two years, the project still couldn’t be completed on time. The IT manager indicated he had spoken to upper management about the issue, but upper management did not take any action.
- One of Go-Go’s primary strategies is to achieve consistent growth. The capital budgeting policy indicates a required payback period of 24 months or less and an internal rate of return that exceeds cost of capital by 6% for all new investments.
- While touring the facilities you noticed several employees in the purchasing department wearing clothing with logos from Go-Go’s major suppliers. Also, while interviewing the Operations manager, you noticed a picture of him and three other top executives on a fishing boat named after one of Go-Go’s major suppliers.
- The accounting information systems and internal controls appear to be well-designed and adequate.
Use APA to cite all the resources that you use.