Certified Internal Auditor (CIA) Part 2: Practice of Internal Auditing — Question 3

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?

Answer options

• A. 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.
• B. 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.
• C. 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.
• D. Coordinate with the merging firm's internal audit department to better understand the inventory management function and whether the concerns are well-

Correct answer: C

Explanation

The best course of action for the CAE is to coordinate a review of inventory management with external auditors and legal advisors, as outlined in option C. This approach leverages the expertise of each group and ensures a comprehensive assessment of the concerns. Options A and B are less collaborative and may overlook the benefits of shared insights, while option D does not involve external auditors, which could limit the scope of the investigation.