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$11.$ Role of Internal Audit Function

Nano Circuits Inc. is a publicly traded company that produces electronic control circuits, which are used in many products. In an effort to comply with SOX, Nano is in the process of establishing an in$-$house internal audit function, which previously had been outsourced. The company began this process by hiring a Director of Internal Audits. Nano Circuits' CEO recently called a planning meeting to discuss the roles of key corporate participants regarding the implementation and maintenance of internal controls. Central to this decision is the organizational placement of the future internal audit function and to whom the new Director of Internal Audits should report. In addition, Nano Circuits considered the need to reconstitute its Board of Directors Audit Committee. Participants at the meeting included the company president, the chief financial officer, a member of the audit committee, a partner from Nano Circuits external audit firm, and the Director of Internal Audits. Expectations and concerns presented by the meeting participants are summarized next.

CEO: The CEO expressed concern that Nano Circuits complies with SOX and PCAOB requirements and recommendations. The internal audit function should strengthen the

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organization'sternal control system by developing control policies and procedures and by detecting violations of policies and procedures.

CFO: The CFO saw the role of the internal audit function as one that should be focused primarily on financial issues, and therefore, the director of Internal Audits should report to the CFO.

Audit committee member: The committee member felt strongly that the audit committee as