Question :

Currently, Moody's Investors Services issued a special comment explain best practices for the role of audit committees in overseeing the internal audit function. The particular comment was part of a series of Moody's reports that explain the benchmarking procedures it uses to determine the quality of a company's corporate governance in its determination of the company's debt rating.

Moody's comments, for example, on the comprehensiveness and timeliness of internal audit coverage:

The audit committee should make sure that the timeliness of the audits, by risk category, is suitable, and ensure a process is in place to revisit the cycle on at least a yearly basis. In Moody's view, for large firms, a full audit cycle of three years usually seems appropriate; that is, the whole organization could be audited in an appropriate manner within three years. High risk areas should be audited at least yearly. There will be times when there is some slippage due to the annual reassessment of the firm's risk profile. Thus, Moody's takes the view that no auditable unit could go un-audited for longer than four year.

A. Do you agree with Moody's position that all auditable units could be audited at least once every four years? Justify you answer.

B. Moody's also takes the position that it is best practice for internal auditors to adopt a simple, yet sensible, rating system to assist users understand and determine the information contained in internal audit reports.

1. Show the arguments for and against audit ratings.

2. Do you agree with Moody's position? Describe.