Why Does Molex Have to Hire an External Auditor?

1. Why does Molex have to hire an external auditor?

Under the Sarbanes-Oxley Act, a public company must hire an external audit team to review their accounting procedures and their financial statements. While internal auditor checks the organizations internal control systems, their effectiveness and the business processes, the external auditor checks the financial statement of the business. Molex hire external auditors to look at their financial states and to receive an objective assessment. It is possible that Internal auditor might present a biased view as it would need to work closer with the management while the External auditor who have no interest in company will likely to provide fairly judgment and unbiased report.

2. What was the financial reporting problem at Molex? How would the correction of the problem be recorded in Molex's financial statements?

Molex has significantly overstated income, profits on inventory sales between Molex subsidiaries (but which had not been sold to an external customer by period-end) had not been excluded in computing the consolidated firm's earnings and inventory.

Molex has to adjust those amount from the financial statements, as it can lead to financial misstatement that can cause misleading information for the stakeholders.

3. What factors do you think influenced management's decision not to raise the issue with the auditors?

Molex would be hiding key information from the auditors, since many prospective investors look at past earnings for an indication of future results. These issue would impact the views on Molex values, and would have a significant effect on Molex stock price that should be recognized and restated, because of the overstated earning/ income.