ASK THE EXPERTS
HE PREVIOUS AUDIT OF THE
Auckland, New Zealand, factory had gone well. It was two
years ago and, although the
overall assessment had been
good, there were high-risk findings related
to inventories — the largest item on the
corporate balance sheet — and the ability to plan production. Now, the company’s
experienced senior internal auditor, Janice,
as well as the four-person audit department
from the home office in Toronto, had just
completed the opening meeting for a new
audit. It had gone well and Janice explained
that the audit’s scope was focused on the
two earlier findings and the new materials-management system.
Janice had discussed the audit with the
chief information officer (CIO) and chief
financial officer (CFO), both of whom
had expressed a need to know that the
new information technology system was
providing adequate controls. The CFO
was particularly concerned because the
external auditors had found fault last year
with the Auckland inventory valuation
and reserves for obsolescence. The end
of the year was approaching in a couple of months, and it was critical to provide the external auditors with assurance
on the Auckland inventory numbers.
But, as soon as the opening meeting was
over, the general manager motioned Janice into his office.
“You have a message to call the CFO, but
I need to talk to you first,” he said. “The
chief operating officer (COO) called just
before the meeting to say that the company
has decided to close down this factory and
consolidate our Asia/Pacific business in
Sydney. I have to focus everybody’s attention on that now, as we only have three
months before we close down. I am sure
you will understand that we need you to
cancel this audit; we will not have the time
Is value added by
auditing a closing site?
One internal auditor
has to make that
decision on the fly.
to answer your questions — and the results
will not add value for us.”
Janice went back to the auditors’ room
and called the CFO, only to receive a second shock: Her boss had been rushed to
the hospital and she was now the acting
director of internal auditing. They talked
about the planned Auckland closure. The
CFO said he had just been told, but he was
still worried about the year-end audit issues.
Janice asked him what to do, but he said
she should use her own judgment. If she
wanted, he would talk to the general manager or the COO and ask for their cooperation with the audit. At the same time,
it was important not to interrupt the plans
for closing the site, and he would understand if Janice felt it was necessary to cancel the audit.
Three experts offer Janice advice on what
she should do next.
Vice President and Director, Audit Services
Janice should stay and complete the audit.
The focus of the audit should now be on
ensuring control during the shutdown
process. She can “re-scope” the audit to
include developing a plant shutdown audit
program, which would provide real value
to the general manager. Establishing a
checklist to ensure the safeguarding of
assets as the plant goes through the shutdown process is a critical requirement, particularly because many of the local
employees will not be interested or concerned with the company’s position.
Janice should confirm the current
inventory valuation (most recent month-end) and identify special procedures for
the general manager to use in transferring all inventories out of New Zealand.
A roll-forward schedule from current
month-end balances and the special
FEBRUARY 2004 INTERNAL AUDITOR