1、Internal Auditors Roles and Responsibilities,Chapter VIII,Chapter Objectives:, Understand the importance and value-added nature of the internal audit function. Review the qualities of an effective internal audit department. Discuss the role of internal auditors as assurance providers and consultants
2、. Review the trends of the internal auditing profession. Discuss the relationship of internal audits and the audit committee. Analyze the determinants of an effective internal audit. Discuss the professional practices framework (PPF) adopted by The Institute of Internal Auditors (IIA). Promote the b
3、est practices and internal audit framework.,Key Terms,Chief audit executive (CAE) Committee of Sponsoring Organizations of the Treadway Commission (COSO) Foreign Corrupt Practices Act (FCPA) of 1977 Institute of Internal Auditors (IIA) Standards for the Professional Practice of Internal Auditing (SP
4、PIA),Internal Auditing Function and Corporate Governance,Comparison of Internal Audit (Pre- and Postcorporate Governance Reforms),Internal Auditors as Assurance Providers,Assurance reports on these measures are currently voluntary, except for the audit report on economic measures (four basis financi
5、al statements), but internal auditors are well-trained and positioned to provide numerous assurance services. Internal auditors, in addition to these voluntary assurance services, can assist external auditors in their integrated audit of internal controls and financial statements. (PCAOB Auditing St
6、andard (AS) No. 2, superseded by AS No. 5) Internal auditors may assist management in complying with Section 302 and 404 requirements of SOX by reviewing managements certifications on internal controls and financial statements or providing some type of assurance on the accuracy of those certificatio
7、ns.,Internal Auditors as Consultants,Internal auditors can provide a variety of consulting services to the companys board of directors, the audit committee, management, and other personnel at all levels.Consulting services to the board of directors and audit committee. Consulting services to managem
8、ent. Internal auditor training services.,Trend and Relevance of Internal Auditors,The Foreign Corrupt Practices Act (FCPA) 1977 COSO Report of the National Commission on Fraudulent Financial Reporting (1987) The IIA redefined internal auditing in 1999 SOX Sections 302 and 404 (keep in mind that SOX
9、does not directly address internal auditor responsibilities or internal audit function.) The PCAOB in its AS No. 2,Authorities and Responsibilities of Internal Auditors,The internal audit function should have (1) full and free access to the companys audit committee; (2) unrestricted access to the co
10、mpanys records, documents, property, and personnel; and (3) authority to discuss initiatives, policies, and procedures regarding risk assessment, internal controls, compliance, financial reporting, and governance processes with management and other corporate governance participants.,Internal Audit O
11、utsourcing,The decision of whether to establish and maintain an internal audit function or outsource the function should be made by the companys board of directors and its representatives. The SEC rule permits internal audit outsourcing to the clients independent auditor in the following areas:1. Op
12、erational internal audits that are not related to internal accounting controls, financial systems, or financial statements. 2. Nonrecurring assessment of discrete items or other programs unrelated to outsourcing of the internal audit function.,Audit Committee Relationship with Internal Audit,The aud
13、it committee can contribute to the success of internal auditors and the achievement of their value-added activities by ensuring that they have 1. Sufficient independence from management by reporting to and being held accountable to the audit committee 2. Adequate resources, competence, and focus to
14、assess the companys operational efficiency, internal control effectiveness, ERM, and reliability of financial reports 3. Proper knowledge of the companys corporate governance, internal control, financial reporting, and audit activities 4. The mechanisms and confidence to bring forward controversial
15、financial reporting issues 5. A process for communicating directly with the companys audit committee on a regular and timely basis 6. Access to the audit committee to discuss concerns related to management activities, financial reporting risk, and fraudulent financial reporting 7. Audit committee ap
16、proval of the budget and staffing of the internal audit function.,Internal Auditors Role in Internal Control,Section 404 Compliance,IIAs Attribute Standard,Institute of Internal Auditors,IIAs Performance Standards,Institute of Internal Auditors,Code of Ethics,Institute of Internal Auditors,Institute
17、 of Internal Auditors,Determinants of the Effective Internal Auditor,Internal Auditors are striving to fulfill their responsibilities by using the best practices. PricewaterhouseCoopers suggests that internal auditors best practices should include the following:Build an adequate internal audit staff
18、 to support the needs of businessStructure the internal audit function on a fluid and flexible frameworkDesign an enterprise wide risk-based audit program.Broaden audit scope to address third-party and vendor risk.Combat fraud by advocating ethical conduct throughout the organization.Manage informat
19、ion systems risk proactively.,Internal Audit Performance,Four-phase plan suggested by PCW: Phase 1: Project planning consisting of establishing specific internal audit objectives in line with stakeholder expectations.Phase 2: Value-driver identification, including gathering information about value d
20、rivers of internal audit.Phase 3: Current state assessment consisting of reviews and analysis of internal audit core processes, benchmarks, and best practices.Phase 4: Solution development of preparing report findings, observations, and recommendations for improvement in performance,Internal Audit F
21、ramework,Internal Auditing Education,The Institute of Internal Auditors Research Foundation (IIARF) is in the process of establishing the Common Body of Knowledge (CBOK) for internal auditors. The IIA has established the Internal Auditing Education Partnership (IAEP) program to promote internal audi
22、ting in colleges and universities in educating the next generation of auditors.,The internal audit function of corporate governance provides objective and independent assurance and consulting services designed to add value and improve the companys sustainable performance in the areas of operations,
23、risk management, internal controls, financial reporting, and government processes.Internal auditors are well trained and positioned to provide numerous assurance services to their organization. The emerging trend toward more emphasis on MBL of governance, economic, ethical, social, and environmental
24、 performance requires organizations to provide assurance on a variety of their performance measures and achievements.SOX does not directly address internal auditor responsibilities or internal audit function.The internal audit function should have (1) full and free access to the companys audit commi
25、ttee; (2) unrestricted access to the companys records, documents, property, and personnel; and (3) authority to discuss initiatives, policies, and procedures regarding risk assessment, internal controls, compliance, financial reporting, and governance processes with management and other corporate go
26、vernance participants.,Conclusion,A close working relationship between the audit committee and internal auditors can improve the effectiveness of corporate governance.Internal auditors, as an integral component of the organizations governance, should continue to improve their internal audit quality
27、and effectiveness to secure their position in the corporate governance continuum.The IIA has promoted the role of internal auditors in corporate governance as providing objective and independent assurance and consulting services to their organizations.The IIA has established a PPF, which provides a definition of internal audits, its code of ethics, SPPIA, and development and practice aids.,Conclusion,
