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Question 198

A manufacturing organization is considering a merger with a similar firm, and requests that the chief audit executive (CAE) perform a due diligence audit. During the preliminary survey, the CAE notes that inventory management is a high risk area. In consultation with the external auditors and legal advisors, the CAE learns that they share those concerns. Which of the following is the CAE's best course of action?

Perform an independent audit of the merging firm's inventory management practices to verify the concerns and to provide relevant and reliable results to management for their consideration and action.

Advise management that internal audit, external audit, and legal advisors all have concerns about inventory management and, given the high materiality of inventory, management should not proceed with the merger.

Coordinate a review of inventory management with external auditors and legal advisors and ensure each group focuses on their area of expertise to ascertain the extent of the problems, if any.

Coordinate with the merging firm's internal audit department to better understand the inventory management function and whether the concerns are well-

Correct Answer: A

Performing an independent audit of the merging firm's inventory management practices allows the CAE to verify the concerns firsthand and provide relevant, reliable results to management for their consideration and action. This course of action is proactive, thorough, and places the CAE in the best position to ensure an accurate assessment of the high-risk area, which is crucial for the merger decision.

Discussion

EminOption: C

Answer D is incomplete