Introduction
Central Office Supply has been operating as a smaller business and it plans to expand its operations to a public company level. However, due to Sarbanes–Oxley and PCAOB Auditing Standard No. 2201 acts, the costs of operating a public company have risen significantly. For example, the audit costs have risen incredibly due to the influence of these acts. This paper seeks to present potential changes in Central Office Supply’s responsibilities of internal control and audit due to the enactment of these acts.
The Internal Control
For a firm to control its operations efficiently, it has to incur some expenses. For instance, a company has to hire extra supervisors, surveillance systems, and experts to ensure that all the sectors run smoothly. But that becomes a challenge if the company lacks enough funds to pay these experts and supervisors (Eccles et al., 2014). Central Office Supply is likely to find itself in this situation since it has been used to incurring little costs, yet now it has to comply with the suddenly-increased costs (due to the implementation of Sarbanes–Oxley and PCAOB Auditing Standard No. 2201 acts).
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Changes in the Internal Control
The potential changes that will be experienced by Central Office Supply in terms of internal control include:
One, the company will incur a lot of losses due to its inability to afford to hire enough personnel and install surveillance systems to ensure that every employee works optimally (i.e.., reduced internal control).
Two, if it has to maintain its internal control, Central Office Supply will have to reduce its productivity so as to compensate for the increased operations costs (Mitra, 2016).
Three, if it has to maintain its productivity, Central Office Supply will have to sell much of its stock shares to investors. As a result, it will share some of its internal control power with the shareholders (Eccles et al., 2014).
Audit Process
Auditing is the process where a company applies accounting techniques to enhance accountability. It is through auditing that a firm can identify financial frauds and job underperformances. Companies usually respond to auditing reports by adopting and enforcing counter-mechanisms, for example, a company can respond to underperformance by setting weekly or monthly targets for its employees (Pizzini et al., 2014). In general, public companies have to conduct audits more frequently than private companies.
Changes in the Internal Control
Note that auditing processes usually cost companies a significant amount of money. Considering the current situation, where the auditing fees have risen, the following changes are likely to face Central Office Supply:
Firstly, Central Office Supply will reduce the frequency at which it conducts its auditing, due to financial constraints (Pizzini et al., 2014).
Secondly, the pace at which Central Office Supply will audit its operations will depend on the stock-turnover, such that the higher the sales the more frequent it will audit its operations.
Thirdly, the pace at which Central Office Supply will audit its operations will also be determined by the capital base, such that the more investors buy its shares the more frequent it conducts audits.
Conclusion
This paper sought to present the possible changes that will face Central Office Supply in case it advances to a public company. From the findings, it turns out that the company’s ability to conducts frequent audits as it is currently doing will be jeopardized. Besides that, the company will lose some of its internal-control powers due to financial constraints.
References
Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of corporate sustainability on organizational processes and performance. Management Science , 60 (11), 2835-2857.
Mitra, A. (2016). Fundamentals of quality control and improvement . John Wiley & Sons.
Pizzini, M., Lin, S., & Ziegenfuss, D. E. (2014). The impact of internal audit function quality and contribution on audit delay. Auditing: A Journal of Practice & Theory , 34 (1), 25-58.
