Good evening everyone, today me Yin Yin and Jaya will present on discussion question 3 from page 9-35.

The question is: Should the Chief Audit Executive (CAE) opine on the design adequacy and/or operating
effectiveness of the system of internal controls regarding:

1. Reliability of financial reporting? Why and why not?

My answer is “Yes”. Although the designing of the internal control system is not the scope of the CAE, he
can still provide input and suggestion to the board of directors or CEO to further improve on the
effectiveness. This would be especially useful in Fraud Risk Management. Fraudulent financial reporting
according to GAAP can be in terms of manipulating, falsifying, or altering account records or supporting
documents, intentionally omitting events, transactions and other significant information and
intentionally misapplying accounting principles. These kind of frauds can happen at all levels in the
organization. However, what is it involves the senior management? Senior management is often
involved in the design of the internal controls systems. What if one of the senior management misuses
this authority for personal gains and benefits? So, in this case, the CAE can work together with the CEO
or CFO to design the system of internal controls. The CAE and hit internal audit function will required
authorization from the board of directors to audit the management’s opinions. Chief audit executive
main role is to develop, direct, organize, monitor, plan, and administer the internal audit plan and
budget, as approved by the audit committee, for the purpose of determining the accuracy of financial
records, effectiveness of business practices, and compliance with applicable policies, procedures, laws,
and regulations. The CAE also directly supervises the internal audit management team (audit directors
and managers), oversees the entire internal audit function, and approves the hiring and termination of
internal auditors.

2. Effectiveness and efficiency of operations? Why and why not?

Here my answer is also “Yes”, when the CAE opines on the system, he is giving independent opinions to
the board of directors and senior management. This could potentially improve on quality and promote
innovation. The CAE and his internal audit function may be able to identify opportunities for process
improvements. On the other hand, they could also give inputs and suggestions to reduce cost and
operating time. Improve on the overall working environment for employees to maximize efficiency and
effectiveness in their operations. More efficient use of resources and lesser waste. However, for the CAE
to do this, he and his team will need authorization from the board and CEO. The CAE will also need his
own expertise who are able to audit as well as provide suggestions for improvements. He will need
technical experts to perform this kind of audits.

With this, I will pass to Jaya. Thank you.