Bird Machine Company is considering developing an internal audit department. A few years ago, the company began an expansion program that included acquiring new businesses, some of which are located quite far from the home office. Bird Machine retained the prior managements after most acquisitions and expects to continue to do so. The corporate organization is decentralized, and the parent company (Bird Machine)

sets general policies. Division and subsidiary managements are quite autonomous — their performance is measured against budgets and return-on-investment targets established at the beginning of each year. The separate units of Bird Machine manufacture and market their own products. Current sales volume is $150,000,000.

Bird Machine has been audited by the public accounting firm in which you are a manager. You have supervised the audit for the past three years and have now been asked by Bird Machine Company to prepare a report on activities that could be assumed by an internal audit department.

Required:

1. Draft a report that describes:

a. The objectives of independent and internal auditors.

b. The types of audits an internal audit department might be expected to perform.

c. The relationship between the internal and the independent auditor.

2. The company has offered you the position of director of internal auditing. Describe changes in your audit philosophy and in your relationship to Bird Machine's management if you were to take the job.