The Independence Of The Internal Audit Function

This means that the main goals of the act in enhancing auditor independence in preventing fraud in future are faced with pressures regarding its efficiency. Case 3 Effective fraud control depends on prevention of the following three weaknesses in the internal control system. First is the static nature of internal controls. This means that internal controls might not be fluid in terms of evolution with the changes experienced in technology, business and the fraud environment. Second is the immunity of the internal control systems. For instance, if a company’s internal control system has weak control policies for its procedures and processes, then the company becomes a target for both internal and external criminal activities. Thirdly, are unclear definitions of the roles and responsibilities of ownership. By this it means that if the internal control system is not well defined to the employees, then there will be an assumption that the role of the internal controls is to only perform audits hence they would not be interested in preventing fraudulent

The case of financial vice president managing a team of internal auditors affects the independence of auditors and reliability of the internal audits. This implies a weak internal control as the VP is in a position to influence the findings of internal auditors. This case relation to internal control oversight by the board of directors.

The issue of independence is another reason why companies choose to have an external audit done. Independence refers to when different employees perform different tasks within a specific department. We will use the accounts receivable section of the accounting department as an example. For independence to occur, a company would want to have separate employees collecting cheques and/or cash, preparing the deposit, and actually depositing the cheques and/or cash. For some companies, usually smaller ones,

Internal auditors are as per Fullerton and Durtschi (2012) obligated to be alert to the signs and possibilities of fraud. External auditors focus on misstatements in the financial statements that are material in

In the case against Enron, one of the most influential accounting scandals, investors sued the corporation and its external auditor Arthur Andersen LLP (Andersen). The collapse of Enron at the end of 2001 revealed that accounting fraud sustained its reported financial health and consequently Andersen’s validation of Enron’s financial statements covered up the fraud. Further investigation uncovered large amounts of revenues from consulting fees paid to Andersen by Enron; parallel to a long-standing business relationship between Andersen and Enron that fundamentally robbed the auditor of its independence. In turn nullifying the highest role, Andersen supposedly played as Enron’s external auditor, delivering strong independent verification of its financial reports. Subsequently, Congress passed the Sarbanes-Oxley Act of 2002 (SOX) mandating reform in the accounting profession, to protect investors. While SOX, is vital to fraud deterrence, audit failure attributed to the lack of independence is still at large. Two distinguishable components yield auditor independence. One, “the auditor must maintain independence in mental attitude” (AU 202.01) known as possessing independence in fact and two, “Independent auditors (…) should avoid situations that may lead outsiders to doubt their independence” (AU 202.03) referred to as independence in appearance. This raises the question, is auditor independence authentic? No- the reforms made by SOX is deficient in ensuring auditors’ independence in fact, the structure of the auditor client relationship neglects auditors’ independence in appearance, and a psychological element exists that challenge auditors’ independent opinion.

According to ICAEW, auditor independence mainly refers to the independence of the external auditor from parties that have an interest in the financial statements of the business being audited. It requires having both integrity and an objective manner to the auditing process. In order for the concept to be deemed effective the auditor needs to carry out their work freely. One of the main purposes of auditing is to increase credibility of the entity’s’ financial statements, as they have expressed their own professional opinion on the truth and fair view in accordance with the proper accounting standards used. This is only possible if the audit is made with reasonable assurance that it has come from an independent source and has not been influenced by other parties, such as managers, directors or by conflict of interest.

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

While many people think of management and accounting positions when mentioning a business, one important role that goes unnoticed is internal audit. Internal audit is an important part of a business. Without internal audit, many businesses would be subjected to theft and fraud. One should note that theft and fraud is not the only reason to have an internal audit. Having an internal audit system can help a company protect against lawsuits from employees and customers. Placing policies and procedures around a company’s assets is crucial to the organization’s success in the future. The policies and procedures put in place by the Institute of Internal Auditors are guidelines the company should not take lightly. Every year the company loses

The Charted institute of internal auditors states that the role of an internal auditor is to provide independent assurance that an organization’s risk management; governance and internal control processes are operating effectively. Internal auditors are obliged to provide an impartial and objective view. They are independent from the operations they evaluate and report to the senior managers and governors.

An external auditor carry out the audit work，according to particular rules or laws of the financial statement corporation, government agencies, other juridical entity, as well as the independent implementation of the audit commissioned. External audit is actually an important systematic inspection, which aim at false behavior within the enterprise and deceptive behavior. The advantage of external audit is to ensure the fairness and independence of the audit. However, the external auditors do not understand the internal organizational structure, production processes and operating characteristics, So difficulties may arise in the audit of the specific business. Non-audit services refer to other authentication services, consulting services and other services other than audit services. This essay will discuss whether the provision of non-audit services by external audit firms is advantageous or disadvantageous, and explain how regulators can reduce the threat posed by such regulations.

(iv) As a Non Financial Systems Police: As the global economy surged forward full steam, the need for having a fully fledged, strategically directed internal audit emerged as an inevitable service that could assist management in decision making, moving away from being merely a police on financial transactions. Thus, emerged the modern internal audit where the latter was established as a separate function, in house or outsourced, with clearly laid down missions and objectives to be achieved. As of today, internal audit undeniably is the backbone

Due to economic conditions that many entities face today, the importance of independence audit is stronger than it ever has been. It is the responsibility of the auditor to undertake a professional and thorough audit, while maintaining an unbiased client relationship. Professional scepticism is arguably one of the most important factors of which an auditor must exhibit during an audit.

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 aim of this essay is to study the function of external auditors in order to analyze why it is important to be independent. The primary mission of external auditors is to review and evaluate all the financial records of a company or corporation. They provide an objective opinion on the organization’s financial statement and effectiveness of the accounting polices in order to help management to make decisions. If the independence of the external auditors is impaired, the public will doubt the quality of professional auditing services, and the consequence would be very serious, just like the bankruptcy of Enron led to the disorganization of Arthur Andersen, once a giant accounting company in the world. In order to maintain and increase