Overview of Events and Impact
Equifax was affected by a serious data breach in March 2017. The breach affected more than 140 million customers and is framed as the biggest data breach in history. The company was criticized for its poor security and weak control systems, and the executives were deemed as corrupt. Consequently, the company’s shares fell by 13% and the company was forced to pay $300 million to compensate victims form the breach (GAO, 2018). This adversely affected the company’s financial performance.
The company’s cash flow was affected and agreed to employ a restructuring firm to resolve the problem of finances. By reorganizing its finances, the corporation was able to avoid bankruptcy. Aside from the financial impact, Equifax’s public image was dented by the data breach. Whereas there are no official figures to indicate the number of client who have opted out of the company, the number is likely to be large due to the negative image casted by the breach.
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Importance of Internal Control Systems and the Role of Auditors
At the end of an organization’s financial year, outside auditors who have no affiliation with the corporate entity carry out pre-audit planning. At this stage, the auditor determines any changes in internal controls and financial procedures. Afterwards, the auditor reviews accounting records and financial statements for the fiscal year to determine inaccuracies. Lastly, the auditor reports the findings of the audit and offers suitable recommendations for the identified discrepancies. Aside, form these roles, auditors should also examine if a company has weak control systems to mitigate security breaches like that of Equifax’s.
Audit failure occurs when there are discrepancies in the audit process such that distortion in financial statements are neglected or inaccurately represented by the auditor due to several reasons. Foremost, the auditor can make mistakes as a result of fatigue or human error (Knechel & Salterio 2016). Otherwise, the auditor can intentionally carry out fraud owing to direct or indirect influence by the client. Additionally, audit failure can occur due to lack of compliance by the client. To mitigate weaknesses, a company can use robust internal auditing systems and innovative system like spreadsheet solutions. The chief difference between internal and external audits is that internal audits are performed by auditors who are part of the organization while external audits are carried out by auditors who are not affiliated with the organization. Internal audits are crucial since they are used as the benchmark for identifying misstatements and proper audit procedures for external audits. On that note, auditors should play an integral role in mitigating security breaches by reinforcing internal control systems.
Provision of IT related non-auditing services does not change investor's perception of the responsibilities of the financial statement auditor. This is largely because the two roles are intertwined in the development of a robust control system. For instance, an auditor can provide spreadsheet solutions for a company. Spreadsheet solutions offer organizations numerous benefits in the form of strategic planning, data organization and data processing. It is crucial for companies with weak internal control systems to employ spreadsheet solutions if they are to improve their performance in the financial industry. Spreadsheets simplify the process of organizing and sorting data so that it is easy to access or visualize information. On top of that, spreadsheets can enable the user to make calculations as well as determine errors in data. Lastly, spreadsheets enhance the processing of data. Based on this illustration, an auditor can be in charge of both auditing and IT services, irrespective of whether it is a Big 4 auditing firm or not.
References
Knechel, W. R., & Salterio, S. E. 2016. Auditing: Assurance and risk . New York: Routledge.
United States Government Accountability Office (GAO). (2018). DATA PROTECTION Actions Taken by Equifax and Federal Agencies in Response to the 2017 Breach
