Saxophone Enterprises: Internal Audit and Governance Report (Finance)

This report analyzes the impact of outsourcing the internal audit department of Saxophone Enterprises Co., examining the advantages and disadvantages for both the company and the outsourcing firm, Cello & Co. The report also inspects Saxophone Enterprises' corporate governance, identifying weaknesses such as unequal power distribution, reliance on personal relationships in hiring, lack of training, and the absence of an audit committee. Recommendations are provided to address these issues, including suggestions for board composition, recruitment practices, training programs, and the establishment of an audit committee. The report concludes with a list of cited references, providing a comprehensive overview of the financial and governance aspects of the case study.

QUESTION 6

TABLE OF CONTENTS
QUESTION 6...................................................................................................................................1
Question 6........................................................................................................................................3
a) Impact of outsourcing internal audit department ....................................................................3
b) Inspection of corporate governance of Saxophone Enterprises Co.........................................3
REFERENCES................................................................................................................................5
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QUESTION 6
a) Impact of outsourcing internal audit department
Saxophone Enterprises Co:-
Advantages:-
1. Savings : Outsourcing internal audit department is a way of saving company's investment
funds as the training and labour charges will be apprehended by the outsourcing company
(Yap, 2016).
2. Elasticity : Saxophone will have complete flexible approach in its internal audit
department, and it also ensures the availability of extra staff from Cello & Co.
3. Quality Assurance : Outsourcing with Cello & Co will invite more skilled and
knowledgable employees which increases the quality of work.
Disadvantages :-
1. Cost Increment :- Cello & Co can recruit employees who have less or no experience
which causes extra expenditure on their training.
2. Security : There is loss of credentials clauses of Saxophone when outsourcing with Cello
& Co.
Cello & Co:
Advantages :-
1. Generation of huge profits due to the internal audit of saxophone being outsourced by
Cello.
2. Increase in the publicity due to link ups with Saxophone.
Disadvantages :-
1. Management of the internal auditing team and the external auditors becomes difficult and
there are times when redundancy errors could occur.
2. Separate efforts and methodologies have to be applied for increasing security (Moeller,
2016).
b) Inspection of corporate governance of Saxophone Enterprises Co.
Weaknesses Recommendations
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Power sharing and distribution is not
performed appropriately, that is Saxophone has
a chairman who had already been a chief
executive.
Non executives must be given a chance to
handle directorship so that a fair chance is
given to all eligible candidates.
Saxophone has an unequal distribution of
board members, which leads to manipulative
decision making and affecting the firm's
overall performance.
The board should constitute of equal executive
and non executive directors.
Personal relations and influences are often
used in Saxophone for filling different
vacancies. No relevance is given to their
knowledge and skills. This approach causes
distrust and decreases the probability of
independent decision making.
Recruiting independent employees and non
executives will let Saxophone experience
changes in the working theories. The
recruitment must be on the basis of skills and
knowledge and not influences or personal
relations (Bragg, 2012).
A critical weakness of Saxophone is, it does
not provide proper training to its new recruits.
This creates lack of awareness about the
responsibilities of the individuals.
Every new recruit must be given training and
guidelines regarding the work he has to do.
This increases the efficiency of the individual.
Absence of audit committees is a major
weakness of Saxophone. This causes a lack of
awareness about the operations and relations of
Saxophone.
An audit committee be which can be internal or
external depending on the requirement of
Saxophone must be deployed with a panel of
non executive board members. They will work
on the financial reporting and have a hold on
the operations of Saxophone.
Non executive directors in Saxophone have a
target based pay.
The pay preferences of the non executives
must not be dependent on Saxophone’s
performance. They must have an annual fee
salary pick up.
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REFERENCES
Books and Journal
Bragg, M. S., 2012. The Essential Controller: An Introduction to What Every Financial
Manager Must Know Volume 582 of Wiley Corporate F&A. John Wiley & Sons.
Moeller, R. R., 2016. Brink's Modern Internal Auditing: A Common Body of Knowledge Wiley
Corporate F&A. John Wiley & Sons.
Yap, S. C., 2016. Determinants of ICT outsourcing among the locally-owned manufacturers in
Malaysia. Strategic Outsourcing: An International Journal. 9(3). pp. -
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