Answer to Question #159892 in Accounting for Nalini

Question

Question

Cara Suite Hotels Co operates a chain of 18 hotels located across the country. Each hotel has bedrooms, a restaurant and leisure club facilities. Most visitors to the restaurant and leisure club are hotel guests; however, these facilities are open to the public as well. Hotel guests generally charge any costs to their room but other visitors must make payment directly to the hotel staff. During the year, senior management noticed an increased level of cash discrepancies and inventory discrepancies, and they suspect that some employees have been stealing cash and goods from the hotels. They are keen to prevent this from reoccurring and are considering establishing an internal audit department to undertake a fraud  investigation. 

 Required:                                                                                                                                                     a.  What is Internal Auditing and  

b.  State what are the roles and responsibilities of Internal Auditor.

c.  Describe the limitations of Cara Suite Hotels Co establishing and maintaining an internal audit department.   

d. What are some of the internal controls needed by the Internal Auditing Team.

Answer 1

a. An internal audit offers risk management and evaluates the effectiveness of a company's internal controls, corporate governance, and accounting processes.

b. Internal Auditor ensures compliance with established internal control procedures by examining records, reports, operating practices, and documentation; verifies assets and liabilities by comparing items to documentation; completes audit workpapers by documenting audit tests and findings.

c. The limitation of Cara Suite Hotels Co for establishing and maintaining an internal audit department is that a lot of operations use cash only and can't be fully controlled.

d. The main components of the internal control framework are control environment, risk assessment, control activities, information and communication, and monitoring.