Question

Internal auditors are often called upon to either perform or assist the external auditor in performing a due diligence review. A due diligence review may be a(n)

A. Review of interim financial statements as directed by an underwriting firm.
B. Operational audit of a division of an organization to determine if divisional management is complying with laws and regulations.
C. Review of operations as requested by the audit committee to determine whether the operations comply with audit committee and organizational policies.
D. Review of financial statements and related disclosures in conjunction with a potential acquisition.

Answer 1

The correct option is D. Review of financial statements and related disclosures in conjunction with a potential acquisition.

A due diligence review by internal auditors is a thorough assessment of financial statements and related disclosures to evaluate a potential acquisition, ensuring accuracy, completeness, and disclosure of all relevant information.

Step-by-step explanation:

When internal auditors are engaged in a due diligence review, they are often assessing a company's financial health and risks associated with a business transaction. The correct option reflecting this type of review is D. Review of financial statements and related disclosures in conjunction with a potential acquisition. This process includes evaluating the accuracy and completeness of financial records, ensuring that there are no hidden liabilities, and confirming that all relevant information has been disclosed to make an informed decision about an acquisition.

Corporate governance involves several layers to safeguard the interests of shareholders and investors. A failure in this governance, such as in the case of Lehman Brothers, can lead to a lack of accurate financial information. To prevent such scenarios, internal auditors in partnership with external auditors must conduct thorough due diligence reviews as part of their corporate governance responsibilities.