Internal Auditing: Directions and Opportunities - Essay Example

Internal Auditing: Directions and Opportunities Auditing is a vital financial undertaking that seeks to reconcile the financial statements of a company with its assets and liabilities. The quality of the process relies on the level of objectivity that the auditors exhibit. The APPB ethical standards 5 therefore is provision that seeks to guide the operations of the auditing process in both public and private sector. The provision outlines behaviors expected of the auditors in order to increase the fidelity of the auditing process. The fall of Enron in the United States was a major portrayal of lack of ethical standards of operation by the auditors contracted by the company (Institute of Internal Auditors & In Fue, 1944). The ethical provisions therefore seek to counter the effects of such occurrences as were witnessed in the company. Objectivity of the auditors is fundamental in the auditing process. The auditors must not possess any interest in the company besides the need to reconcile the financial statements of the company. Additionally, they should not collude with the management of the company. The ethical standards explain the type of relationship that should exist between the auditors and the management of the company. Independence is a key attribute in the operation of auditors that the standards espouse. Auditors must operate independently and have the access to every financial information of the company. Failure to comply with such terms of operation results in serve malfunctions of the auditors a feature that affects the quality of the auditing process. Colluding with the management for example denies the public the vital truth thereby necessitating losses as was the case in Enron. The international standards for auditing 210 explain the responsibilities of the auditors especially in the acceptance of terms of agreement. An auditor in most access is an external body who enters an organization with the view of reconciling the financial records of the company before presenting the reports to the stakeholders of the company who in most cases is the general populace. The acceptance of terms and conditions is vital since it helps state the roles of the auditors and the relationship that the auditor should develop with the management of the organization. The objectives of the standards are to establish preconditions and to develop an understanding between the management and the auditors. The standards therefore formalize the presence of the auditor in the organization and helps create a conducive environment for his operation. Compliance with the terms and conditions of the standards is vital since it helps develop the relationship between the auditor and the management. This way, the standards provide for ways of addressing grievances that arise in the process. In case of a malfunction, the standards helps determine the person to take responsibility thereby resolving some of the issues that had risen in the past. Failure to comply with the standards creates confusion since the management can interfere with the auditors as they carry out their functions in the company thereby interfering with the quality and fidelity of the auditing process. However, with the laws, it becomes possible to avert such cases of interference and making particular people take responsibilities in case a malfunction occurs. The International Standard on Auditing 300 explains the importance of an auditor planning an auditing process. As expected, auditing is an extensive process that requires the auditor to assess the financial statements of a company and determine the efficacy of the facts presented in the financial statement. The process is therefore hectic and involves correlation between the auditors and the management among other fundamental personalities within an organization. The standards further provide for additional considerations prior to the auditing process. This helps create a conducive ground for operation since it helps the concerned parties develop effective ground rules that will influence their operations and relationship during the auditing process. The objective of the standards is to plan the auditing process in order to ensure that the process occurs effectively. Planning is a vital process that guides the undertaking of every process. Auditing is a vital process that equally requires effective planning in order for the process to occur in an orderly manner. Without compliance with the law, the process becomes confused thereby becoming hectic. Without complying with the laws, it becomes difficult to determine the roles of every party involved in the process a feature that therefore creates confusion in the auditing process (Chambers, 1996). Additionally, without a plan, the process will lack the time constrain that guides the operations of both the auditors and the management thereby releasing the report to the stakeholders who wait such reports. The international standards of auditing 570 address the vital role and responsibilities of the management during an ongoing auditing process. As explained earlier, auditors are external bodies who seek to access vital features of the organization in order to obtain vital information that makes the auditing process effective. However, it becomes imperative for both the management and the auditors to have ground rules that govern their relationship in order to create order especially during the process. Management provides information to the auditors. The standards therefore seek to explain the roles and responsibilities of the managers especially in relation to the relationship between the managers and the auditors. The objectives of the standards are to provide the auditors with adequate evidence to inform the auditing process and to determine the implications of the auditing report (Mautz, Tiessen & Colson, 1984). Additionally, the standards eliminate any doubt in the auditing process. Failure to comply with the terms of the standards creates anarchy in the auditing process thereby affecting the quality of both the auditing process and the audit report. The need for the management and the auditors to corporate is important in order for the report to provide a factual representation of the financial status of the company. However, without such clear distinction of roles and responsibilities, the two parties may not account for their actions and the resources they have a feature that will affect the efficacy of the auditing process. By explaining their responsibilities, the two parties maintain impartiality as the managers avail appropriate evidence to the auditing process. References Chambers, A. D. (1996). Internal auditing. Aldershot, England: Dartmouth. Institute of Internal Auditors., & In Fue, C. J. (1944). Internal auditing: Philosophy and practice. Stamford, Conn: Brock and Wallston. Mautz, R. K., Tiessen, P., & Colson, R. H. (1984). Internal auditing: Directions and opportunities. Altamonte Springs, Fla: Institute of Internal Auditors Research Foundation. Read More