NCJ Number
67474
Journal
Internal Auditor Volume: 37 Issue: 3 Dated: (JUNE 1980) Pages: 19-25
Date Published
1980
Length
7 pages
Annotation
POSITIVE AND NEGATIVE IMPACTS OF THE FOREIGN CORRUPT PRACTICES ACT OF 1977, A LAW REQUIRING COMPANIES TO MAINTAIN A SYSTEM OF INTERNAL CONTROLS, ARE ASSESSED AND AUDITING TECHNIQUES FOR COMPLIANCE RECOMMENDED.
Abstract
THE NEW REQUIREMENTS EXPECT THAT COMPANIES SEPARATELY DOCUMENT THE INDIVIDUAL CONTROLS INCLUDED IN THEIR INTERNAL CONTROL SYSTEMS AND THAT THE INTERNAL AUDIT DEPARTMENT MONITOR INTERNAL CONTROLS. COMPLIANCE WITH THE ACT WILL REQUIRE A NEW EVALUATION OF THE RISK-LOSS EQUATION AND A CHANGE IN AUDIT TECHNIQUES TO ESTABLISH THE PROPER SCOPE OF INTERNAL AUDITING. SINCE THE COSTS OF VERIFYING EVERY CONTROL IN EVERY FUNCTION AND EVERY BUSINESS UNIT ON AN ANNUAL BASIS ARE PROHIBITIVE, THE APPROACH OF IDENTIFYING RISK FACTORS INHERENT IN THE BUSINESS TO EVALUATE LOSS RISKS IS RECOMMENDED. THE FIRST ENVIRONMENTAL RISK TO BE ANALYZED IS THAT OF MANAGEMENT INTEGRITY. THIS EVALUATION WOULD FOCUS ON ANY ATTEMPTS TO RESTRICT AUDITING SCOPE. ADDITIONAL RISK FACTORS INCLUDE MANAGEMENT CONTROL, LIQUIDITY, LOCATION, DISTANCE FROM THE CENTER OF CONTROL, ORGANIZATION OR SYSTEMS PROBLEMS, UNAUDITED COMPUTERS, TYPES OF TRANSACTIONS, TIME BETWEEN AUDITS, AND BUSINESS SIZE. CHANGE IN AUDIT TECHNIQUES WILL INVOLVE TWO AUDIT TYPES, THE MACRO AND THE MICRO (CRITICAL POINT) AUDITS. THE FIRST REQUIRES AUDITING A BUSINESS FUNCTION OR CYCLE TO EVALUATE THE ADEQUACY OF INTERNAL CONTROLS NECESSARY TO ESTABLISH THE SCOPE OF THE FINANCIAL STATEMENT AUDIT, ISOLATING AND QUANTIFYING LOSS EXPOSURES. MICROAUDITING, ON THE OTHER HAND, IDENTIFIES THE MOST CRITICAL POINTS WHERE LOSSES MAY OCCUR AND AUDITS THOSE POINTS FOR POSSIBLE PROBLEMS. TIPS FOR SUCCESSFUL CRITICAL POINT AUDITING RECOMMEND ATTENTION TO CASH, THE ACCOUNTS, AND THE UNRECORDED ASSETS AND TRANSACTIONS. ONCE THE CONTROL WEAKNESSES ARE IDENTIFIED, EACH WEAKNESS MUST BE EVALUATED IN TERMS OF COST/BENEFITS. ALTHOUGH THE SEPARATE DOCUMENTATION OF CONTROLS IS DEEMED UNNECESSARY, OTHER REQUIREMENTS OF THE ACT WILL BENEFIT MOST COMPANIES. IT WILL PROVIDE INCENTIVE TO MAINTAIN THE CONTROLS WHICH FREE MANAGEMENT TO CONDUCT BUSINESS IN AN ORDERLY MANNER INSTEAD OF BY CRISES, AND IT WILL ALSO ELIMINATE THE CONTROL WEAKNESSES THAT FREQUENTLY RESULT IN LOSSES. (MRK)