Lack of an Internal Audit Department in a Company - Article Example

Articles relating to the lack of an internal audit department in a company in the UAE Maximize Your Internal Audit Function by Wolf Alison and Philips F Joanne This article talks about optimization of the ability to meet the objectives of an organization by the alignment of the goals of internal audit with the company’s strategic goals. According to the article, the function of an independent internal audit is impartial, and the position that it holds within an organization does not appear to favor either side. It addition, it is in a position of defining the internal audit’s scope, authority to the acquiring of resources and information, as well as a proper structure of reporting to the executive. It also means that the individuals involved do not assess their individual work or even that of those that they are answerable to. There should be a disclosure of any possible or real conflicts of interest that appear to hamper a straightforward and impartial assessment. The internal audit resources have also seen expansion for the purposes of satisfying the increasing demand for the services to facilitate financial report and internal control’s executive certifications. In the future years, it might be expected of the internal auditors to broaden their role to responsibilities such as the improvement of risk management, reduction of organizational costs and complexity, and participation in the development of governance and strategic processes. For instance, the rules of Proxy Disclosure Enhancements of the United States Securities and Exchange Commission to reveal their governance measures, which include the structure of their board, the board’s supervision of risk management as well as its relationship with the executive practices and policies of compensation. The new proxy rules will actually exert pressure or compel the boards to show their role in the supervision of risk management, and further, this presents both opportunities and challenges for the CAEs (chief audit executives) and their teams of internal auditors. All companies that have the department of internal audit have had it very smooth in running their affairs. Their audit departments have helped in keeping track of where the money goes, and ensures that the money is put into good use, and not for the benefit of individuals. The departments have also helped the organizations in knowing if it is making or losing money. Internal audits helps companies in reviewing the processes’ efficiency together with the related international standards, shows commitment by the top management, offers scope of improvement, offers information for the management review meetings as well as helping in the improvement of client confidence and satisfaction. The Importance of the Internal Audit Function in a Company by Jeffrey Thomas This article basically talks about the significance of the department of internal audit in an organization. According to the article, internal auditors carryout a range of activities which include helping their organizations in the prevention of fraud by evaluating and reviewing the effectiveness and adequacy of the system of their internal control, correspond with the level of a possible exposure within the company. The internal auditors should take the following into consideration when meeting their obligations: Examine the control environment’s aspects, carry out practical fraud investigations and audits, report fraud audits results and offer support for efforts of remediation. They might also own the hotline of whistleblower in some cases. They should also examine fraud risk assessment by the management, especially, their process for the identification, assessment and testing of possible scenarios and schemes of misconduct and fraud, which include those involving contractors, suppliers and even some other parties. Moreover, they should examine the operating and design effectiveness of the controls that are fraud related; ensure that audit programs and plans tackle residual risk and include fraud audits; examine the facilities’ design from the perspective of theft or fraud and examine the suggested changes to legislations, or systems and their effect o the controls. In addition, they should examine the communication and information practices and system’s operating effectiveness, and also offer support to the training initiatives that are fraud related, and lastly examine the monitoring activities as well as the related computer software, support the supervision by the audit committee in matters related to fraud and control; support the fraud indicators development and hire and train workers so that they can have the required investigative experience. Good Internal Controls and Auditor Independence by Locatelli Mary This article describes how a good department of internal controls should be. According to the article, internal auditors play a very crucial role in the corporate governance of their organizations, financial reporting processes, analysis of risk management and internal control structure. During the last decade, they actively offered management with assurance and consulting services to help in conformity with the laws like the 2002 U.S. Sarbanes-Oxley. Traditionally, internal auditors have applied the approach that is risk-based in the auditing of controls over the operational effectiveness of their organizations, their financial report’s reliability, and adherence or compliance with the applicable regulations and principles. Internal auditors should centre their focus on the controls that are compliance-driven when offering assistance to the management in the preparation of reports on the internal control over the financial reporting. Nonetheless, even though the responsibilities of management for adherence cannot be renounced or delegated, the auditors can chronicle the design’s efficiency and the ICFR’s operation and also offer opinions and assurance on internal control. The level of the involvement of the internal auditing with Sections 302 and 404 is dependent on the resources of the audit function, charter, personnel qualifications, and professional standards and funding. Besides conferring with the recommendations that are stipulated in the Practice Guide of IIA, internal auditors have to take into consideration the possible opportunities and challenges in the expression of audit opinions, and understand their limitations and objectives. They should make some recommendations regarding counteractive actions for the improvement or internal controls and taking notice of the commitment and willingness by the management to implement the remedies. The impact of internal controls and penalties on fraud by Barra This journal describes the impact of internal controls and penalties on fraud comprehensively, whereby according to the author, the quality together with reliability of the opinions of internal audit is determined on the basis of the objectivity, transparency, independence, constructive recommendations, and the organizations eminence of the signing of the report by the CAE (Picket 37). For relevance, recommendations and opinions must be related to the intended controls and established risks, and should be reliable, concise and constructive in the recommendations of improvements. Such recommendations can be made by auditors and an expressed on the internal control by: Examining the manner in which the development and maintenance of the internal control system is done by the management, which is effective and sufficient in the risk management; assessment of the effectiveness and efficiency of the controls and processes of risk management; assessment of the entity-level controls which are relevant to the company’s ethical values and integrity, the style of operation and philosophy of the organization, the structure of the organization, procedures and policies of human resources, personnel’s integrity and competence and the assignment of responsibility and authority; challenging the decisions of the management regarding the internal control when it is necessary; working hand in hand with the management, audit committee and board of the organization in facilitating improvements in the structure of the internal control. Views expressed on the internal control have to be integrated in the annual reports. Provision of internal audit opinions regarding internal controls is still in its early times. However, with knowledge and experience, auditors might focus more on the provision of opinions regarding these features of internal control. Toward a Paradigm for Continuous Auditing by Onions This text talks about what should be done for the purposes of ensuring that there is a continuous auditing and its impacts on companies or organizations. According to the writers, we find that by provision of recommendations and opinions, auditors should be in a position of better assisting in the design together with implementation of their company’s systems of internal control, process of risk management and governance measures. The text states that the department of internal auditing is an important one and that each and every company that wants to be successful in its operations should adopt it. Companies or organizations of all sizes, complexities and types are experiencing various dangers that affect the trustfulness of financial statements and the internal control’s effectiveness. Effectual evaluation and proper reporting on the risk management by the organization needs internal auditors to help in the understanding of the risk evaluation process from the beginning to the end. Before the formulation of an opinion regarding the risk management by the auditors, they should establish and measure risks, and then weigh them against possible rewards to form sustainable performance. They should make sure that the formulated process of risk examination is enhancing strategic decision-making as well as supporting the accomplishment of the objectives and goals of the organization. Works cited Wolf Alison and Philips F Joanne. “Maximize Your Internal Audit Function.” The institute of Internal auditors. Altamonte Springs, Florida. 2007. Web. March 31, 2012. Jeffrey Thomas. “The Importance of the Internal Audit Function in a Company.” Demand Media. (n.d.). Web. March 31, 2012. < http://smallbusiness.chron.com/importance-internal-audit-function-company-21496.html> Locatelli Mary. “Good Internal Controls and Auditor Independence.” The CDA Journal. October 2002.Web. March 31, 2012. < http://www.nysscpa.org/cpajournal/2002/1002/nv/nv4.htm> Barra. The impact of internal controls and penalties on fraud. Journal of Information Systems (Spring): 2010: 1-21. Onions. Toward a Paradigm for Continuous Auditing. The University of Salford, Salford, Greater Manchester, UK, 2003. Print. Read More