The Independence Of Internal Audit

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Independence is a very important element in auditing. Because of the Enron Corporation and other scandals, independence of auditors becomes a vital issue in the audit industry. It is difficult to achieve ‘independent’ for auditors as there is the fact that the client pays the audit fee. In this essay, we will focus on the independence of internal audit.

Internal audit plays an important role in a company. According to the IIA (1999), “Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management,
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“The auditing profession promotes the principle of independence to define, defend, and extend the profession” (Sikka and Willmott, 1995). Independence is the most priceless asset in the auditing profession and the basic principle that supports the reputation of the auditing profession in the public eye. Auditors protect the public’s confidence in such services by conducting an auditing work independently. In fact, the capability of the profession depends on how it can ensure the principle of independence.

In the ideal circumstances, the person performing an audit should have no relationship to the party being audited. The lack of a relationship prevents bias entering into the audit findings. In corporate settings, a company hires an internal auditor or establishes a contract to purchase internal or external audit services, an agency relationship is formed. Governmental rules, professional ethics policies and industry standards are put into place to further promote auditor objectivity in these situations.

Internal auditors are directly hired or contract employees of the company being audited. Their overall objectivity might be doubtful as they need to satisfy management levels to get paid. Rules to minimize bias focus on eliminating conflicts of interest. The audit result will be questionable when there is conflict of interest between auditors and their employers. Effective internal auditors cannot audit their own work or processes, functions
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