Internal Audit functions

I feel, the functions of Internal Auditors should not include only the investigation. There may be stewardship view but which should not mean that they were appointed for Policing other departments. The moral of employees may be deteriorated. 

I feel, they more be employed to check the compliance of organizational practice with its policies. Or formulation or amendment of existing policies.

In money and its management there are chance to have been embezzled so.

5 General principles of Corporate Governance

The five principles set out below were developed by the Organisation for Economic Co-operation and Development (OECD). They are intended to provide a general model of a good corporate governance system to achieve the following objectives.


(1) Protect shareholders’ rights, such as voting rights and the right to transfer ownership in shares.

(2) Ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective remedy for any violation of their rights.

(3) Recognize the rights of stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating assets, jobs, and the sustainability of financially secure enterprises.

(4) Ensure that timely and truthful disclosure is made on all material matters concerning the corporation, including the financial position, performance, ownership, and governance of the company.

(5) Ensure the strategic direction of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.

Should we outsource the internal audit function?

In common with other areas of a company’s operations, the directors may consider that outsourcing the internal audit function represents better value than an inhouse provision. Local government authorities are under particular pressure to ensure that all their services represent ‘best value’ and this may prompt them to decide to adopt a competitive tender approach.

Advantages

• Greater focus on cost and efficiency of the internal audit function.
• Staff may be drawn from a broader range of expertise.
• Risk of staff turnover is passed to the outsourcing firm.
• Specialist skills may be more readily available.
• Costs of employing permanent staff are avoided.
• May improve independence.
• Access to new market place technologies, e.g. audit methodology software without associated costs.
• Reduced management time in administering an in-house department.

Disadvantages

 • Possible conflict of interest if provided by the external auditors

• Pressure on the independence of the outsourced function due to, e.g. threat by management not to renew contract.
• Risk of lack of knowledge and understanding of the organization's objectives, culture or business.
• The decision may be based on cost with the effectiveness of the function being reduced.
• Flexibility and availability may not be as high as with an in house function.

Auditors position in respect of Accounting System and Internal Control

Management is responsible for maintaining an adequate accounting system incorporating various internal controls to the extent appropriate to the size and nature of the business. The auditor should reasonably assure himself that the accounting system is adequate and that all the accounting information which should be recorded has in fact been recorded. Internal controls normally contribute to such assurance.

The auditor should gain an understanding of the accounting system and related internal controls and should study and evaluate the operation of those internal controls upon which he wishes to rely in determining the nature, timing and extent of other audit procedures.

Where the auditor concludes that he can rely on certain internal controls, his substantive procedures would normally be less extensive than would otherwise be required and may also differ as to their nature and timing.