Role of Internal Auditor

Scoping and Evaluation Judgments in the Audit of Internal Control over Financial Reporting 12.1 EyeMax Corporation . . Evaluation of Audit Differences

I N W I L L I A M S H A K E S P E A R E ‘ S

The purpose of this paper is to discuss the SEC’s influence on auditing a private company and the essential activities involved in the initial planning of an audit. Next the discussion will delve into four stages of the audit and tasks performed by the auditors as well as internal control findings and various aspects of the audit.

U s e t e c h n i c a l a s p e c t t o e n g a g e a u d i e n c e

Corporate governance is the responsibility of an organization’s board of directors (BOD). The internal auditor (IA), the external auditor (EA), and the information technology (IT) auditor all play important roles in the process of corporate governance. By using established frameworks established by the Sarbanes-Oxley Act (SOX), the Integrated Framework from the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and the Control Objectives for Information and related Technology (COBIT), organizations can demonstrate their adherence to regulations and legal requirements. Under SOX, these control frameworks have become the law and are no longer voluntary best practices. The audit process itself assists organizations

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.

Internal controls represent an organization’s processes and procedures used to meet its goals and objectives and serve as a defense in safeguarding assets and preventing and detecting errors, fraud, and abuse. Effective internal controls provide reasonable assurance that an organization’s objectives are achieved through (1) reliable financial reporting, (2) compliance with laws and regulations, and (3) effective and efficient operations. The passing of the Sarbanes-Oxley Act of 2002, as well as the numerous corporate frauds and bankruptcies over the past decade—including some

Internal controls are regulated by the Sarbanes-Oxley Act of 2002. This act assigns responsibility for a company’s internal controls on its executives and directors (Kiesco et.al., 2008). This assignment of responsibility forces the company to use effective internal controls by making a certain group responsible. The act also established the Public Company Accounting Oversight Board which regulates the activities of auditors. Together, assigning responsibility and defining the standards of auditors, the Sarbanes-Oxley Act of 2002 helps to safeguard a company’s investments, assets and future successes by discouraging fraud and theft.

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 final responsibility for the integrity of an SEC registrant’s internal controls lies on the management team. U.S. companies need to refer to a comprehensive framework of internal control when assessing the quality of financial reporting to determine that financial statements are being presented under General Accepted Accounting Principles, GAAP. The widely used framework is referred as COSO, Committee of Sponsoring Organizations of the Treadway Commission, sponsored by the following organizations American Accounting Association, the American Institute of CPA’s, Financial Executives International, the Institute of Internal Auditors, and the Institute of Management Accountants. COSO’s defines internal control as:

Does the Board or audit committee understands and exercises oversight responsibility over financial reporting and internal control?

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.