To answer this question we will have to first understand what is internal auditing and what does it entail and then answer why internal auditing is “eyes and ears” of management.
Internal Auditing as defined in the IPPF Framework is “an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes” (Auditors, 2013) .When looking in the A vision for the future: Professional Practices Framework for Internal Auditing (IIA 1999) internal auditors were previously mere watchdog for management and
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We can agree with globalisation the world is more inter connected and one can’t be at all places at once. This then can lead to questions like how can management be sure that all transaction done by their organisations are legal, are the correct procedures been followed to acquire contracts and deals and is the organisation able to perform all its operation well. This can become handful if all the responsibility had to rest merely on management. Management of course still has the responsibility to designing and implementing the internal controls. This is where one can distinctly see an internal auditor playing the role of eyes for management as they can look at things objectively without being biased. They can though be influenced by their own ambition and desires Hall(1969) and as these are challenges that an internal auditor will face the code of ethics and standards play an important role for the profession as it guides auditor when conflict of interest is involved which may hamper their work ethic and transparency to management .The code ethics and standards will therefore serve as a reference point for an internal auditor in helping them to make good decisions when faced with dilemmas conflicting with their work. The standards and code of ethics
ASC 410-20-25-8 indicates that an asset retirement obligation is estimable if all of the following exist:
Quality Objectives - The quality objectives define measurable goals relative to the company's quality management system. Requirements on the quality objectives are in ISO 9001:2008 section 5.4.1.
Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.
Due to increasing economic and financial growth, many types of audit have been incorporated throughout the development process of internal activities. Audits can be performed manually or they can incorporate technology. According to Hunton and
A company might decide to establish an internal audit department because an effective and independent internal audit department add values and improve effectiveness of risk management, control, and governance processes. It also helps prevent and detect the frauds.
The external audit focuses on identifying and evaluating trends and events beyond the control of a single firm. An external audit reveals essential opportunities and threats confronting an organization so that managers can formulate strategies to take advantage of the opportunities and avoid or reduce the impact of threats.
The company should hire it’s own internal auditor’s to ensure that the staff understand the company’s accounting procedures. This also helps the external auditor as it give the external auditor another viewpoint when assessing fraud risks. The internal auditors are apart of those charged with governance and that helps take the pressure off of the external auditor if a fraud should be discovered.
Fullerton and Durtschi, (2012) in their study found that internal auditors should adopt an elevated attitude of skepticism, as they are the first line of defense for finding fraud within a firm. Internal auditors, have an intimate knowledge of the workings of a firm, the corporate environment, as well as employee activities are in a unique position to spot many of the symptoms of fraud to which an external auditor may not be aware. Thus internal auditors should be more skeptical and use their knowledge to enhance their fraud detection in firms (Fullerton and Durtschi, 2012). This is one of the key inputs into the factors that drive audit quality as external auditors rely on inputs from internal auditors in obtaining the evidence they require to produce the audit report (Fullerton and Durtschi, 2012).
There are many different types of audits including financial statements audit, the operational audit and the compliance audit. Either an internal auditor or an external auditor from another firm can conduct these various audits. “The American Accounting Association defines auditing as a systematic process of objectively obtaining and evaluating the accounts of financial records of a governmental, business, or other entity based on established criteria” (www.referenceforbusiness.com, 2009). Essentially the review is done to enable an accountant to assess the representations of management and to consider whether the financial statements conform to the
Internal auditing is an independent objective assurance and consulting acitivity designed to add value and improve an organizations operations.
Internal auditors cannot effectively provide an analysis on the company’s internal dealings as they are part of the company. External auditors, however, can observe these processes from the outside and then determine where the funds of the company and whether the dealings adhere to the regulations. Using external auditors in a company prevents conflict of interest from happening. Conflict of interest is a situation where an individual or organization has multiple interests and of those multiple interests, one could possible corrupt the motivation for an act on the other when the auditor has any kind of beneficial interest in their client’s performance. In other circumstances, there is also the threat of familiarity where auditors become
The purpose of this paper is to highlight the role of external auditing in promoting good corporate governance. The role of auditors has been emphasized after the pass of the Sarbanes-Oxley Act as a response to the accounting scandal of Enron. Even though auditors are hired and paid by the company, their role is not to represent or act in favor of the company, but to watch and investigate the company’s financials to protect the public from any material misstatements that can affect their decisions. As part of this role, the auditors assess the level of the company’s adherence to its own code of ethics.
According to the Institute of Internal Auditors (IIA), (2011), the internal auditing is a team of consultants, a department and a division or other practitioner which independent, have objective assurance and conduct a consulting activity which is designed to add value and improve the organization operations. The internal auditor can help an organization in achieving its objectives by bringing a discipline and systematic approach in order to improve and evaluate the effectiveness of risk management, control and governance process.
The role of internal audit is to provide independent declaration that an organization’s threatadministration, governance and internal control processes are functioning effectively. Internal auditors deal with concerns that are essentially important to the existence and success of any organization. Unlike external auditors, they aspect beyond financial possibilities and statements to reflect wider problems such as the organization’s reputation, development, its power on the location and the approach it treats its organizations.In summary, internal accountantssupport organizations to thrive.
International Professional Practices Framework (IPPF) 2011 and Institute of Internal auditors (IIA), Defines, the Internal auditing as an independent, objective assurance and consulting activity intended to add value and improve an organization’s operations. It helps an organization to achieve its objectives by bringing a methodical, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. The overall objective of internal auditing is to assist all members of management in the effective discharge of their functioning, by endorsing them with objective analysis, appraisals, recommendations and pertinent comments concerning the activities reviewed. The Institute of Internal auditors under the glossary of the Standards for the Professional Practice of Internal Auditing,(IIA 2004c:25) outlines the concept of ‘value added’ in the integrity and objectivity of internal auditing and financial report scrutiny states that:(Institute of Internal Auditors