1. What is Internal Auditing base on the case provided? (5 pts)

2. 2. What is the Management Objective? Is the management objective clear? Explain your answer. (5 pts)

3. 3. Should the auditor accept or reject the engagement? Cite in the context the basis of your answer and relate it with the concept of our discussion (10 pts)

4. Give atleast 3 approaches/audit activities that the auditor should take for Tokyo on the assumption that the engagement was accepted?Explain your answers (10 pts)

Case Analysis

The group internal audit department of a domestic products multinational company headquartered in London is undertaking an audit engagement of the multinationals operating unit in Tokyo. At an early point in the planning process of this engagement, the audit team establishes who has oversight responsibility for the Tokyo operating unitThe production director has a number of direct reports spread across the world, with oversight responsibility for each. The production director needs to know that all is in order within each of these operating units. He or she can go and find out for himself or herself. But the production director will rarely find the time to do so, and would hardly know how to set about doing so effectively. Internal audit looks round corners that management are unable easily to look round for themselves. At a later stage, the emerging audit findings will be discussed with the head of the Tokyo operating unit, whose responses will be built into the final audit report; the audit report will be addressed to the production director in London who may be regarded as the main client of this particular audit engagement. The report will be copied to the head of the Tokyo operating unit. In this way, the audit findings will be addressed to the level of management that needs to know and that is capable of ensuring appropriate action on audit findings is taken. Should the production director fail to ensure this, the chief audit executive will then need to consider whether the audit results, together with reference to the CAEs view that insufficient action has been taken upon them, should be communicated to an even higher level. However, the CAE may consider that the degree of importance of the audit findings, when matched to the seniority of the production director, means that escalation above the level of the production director is not warranted as it may be legitimate for the production director to decide whether to live with a level of risk identified during the audit engagement. Meanwhile, early during the planning of the audit engagement, having established that the production director has oversight responsibility for the Tokyo operating unit, the audit team arrange to meet with the production director. Initially the auditors ask the production director to explain: What are your objectives for the Tokyo operation? As with all information offered to the audit team during the course of the audit engagement, the auditors will consider how they can independently verify the validity of the statement of managements objectives that the team has been given. If the production director points out to the audit team that he or she has not thought much about the Tokyo operation for a while and cannot immediately recall whether there are any established objectives for Tokyo, then audit findings are already starting to emerge as clearly this is unsatisfactory. Nevertheless, the audit engagement cannot proceed further until the audit team has hammered out with the production director an agreed upon set of objectives for the Tokyo operation. Next, in effect the audit team asks the production director the following question: OK, we are agreed on your objectives for the Tokyo operating unit. What information do you need to be receiving so that you know whether these objectives are being achieved? Again, if the production director is uncertain, then further provisional audit findings are starting to emergeeven though this discussion is taking place only during the planning phase of the audit engagement, before the audit team have left London for Tokyo. But planning the engagement cannot proceed further until the audit team has hammered out with the production director an agreement on the nature of the information he or she needs to be in receipt of in order to monitor whether managements objectives for the Tokyo operation are being achieved. The next step is for the audit team to ask to see the information the production director is receiving: OK, we are agreed on the information you need to get from Tokyo to monitor that managements objectives for Tokyo are being achieved. Can you show us the information you are receiving about the Tokyo operation, please? When the audit team reviews this information they may discover that it is incomplete, unclear, inconsistent or untimely. So, further important provisional audit findings are starting to emerge. Nevertheless, the audit team endeavours to interpret the information so as to determine the most valuable focus for the audit fieldwork in Tokyothat is, their audit objectives. They will discuss their proposed audit objectives with the production director with the intention of getting his buy-in to them.But being an assurance engagement, not the provision of a consulting service, it should be the decision of the chief audit executive what the audit objectives are to be: internal auditors do not subordinate their judgement on professional matters to that of others

1. What is Internal Auditing base on the case provided?

2. What is the Management Objective? Is the management objective clear? Explain your answer.

3. Should the auditor accept or reject the engagement? Cite in the context the basis of your answer and relate it with the overview of the audit process 4. Give atleast 3 approaches/audit activities that the auditor should take for Tokyo on the assumption that the engagement was accepted? Explain your answer.

Audit activities: Initiating the audit Preoaring audit activities Conducting the audit activities Preparing and disyributing the audit report Completing the audit Conducying audit follow up