As the newly appointed finance director of a quoted company, you have just been asked by the Chairman to advise on the effectiveness of the existing internal control department. The chairman explained that internal audit has been established in the company for many years. The chief internal auditor, who has held this post for many years, has reported directly to the chairman. He has always had a right of access to the Board and since the establishment of an Audit Committee, has worked closely with that committee.

However, there had been increasing friction in recent years between the chief internal auditor and your predecessor as finance director. Internal audit was regarded by your predecessor as expensive, slow, cumbersome, and ineffective. The Chief Internal Auditor has seen the internal audit department's main objective as being supporting the work of external audit by reviewing compliance with internal accounting procedures relating to accounting for sales, purchases, payroll, and non-current assets. Your predecessor would have preferred internal audit to spend far more time assessing business value for money; he was particularly concerned with investor demands for growth in profits and would have liked internal control recommendations to contribute to this growth.

Required:

a) Advise the chairman whether you should carry out this assessment of internal audit or if not, who should do so. (16 marks)

b) Recommend specific objectives for the internal audit department related to the aims of the department. You should explain how performance of the internal audit department against each of its objectives, could be evaluated and provide for each objective an example of a performance measure that could assist in this. (24 marks)