Question

Internal auditing has evolved to meet the needs of business, government, and nonprofit organizations. Initially, internal auditors supplemented the work of the independent auditors by helping to ensure the accuracy of the organization's financial information. Today, internal auditors can be as independent as external auditors.

Discuss how an Internal Auditor may safeguard against impairment of independence and why an external auditor may have more of an independence issue than an internal auditor.

Answer 1

The main job of an internal auditor (IA) is to identify problems and correct them before they are discovered during an external audit by an outside firm or regulatory agencies, such as the Securities and Exchange Commission (SEC). One of the roles of the SEC is to regulate how companies report their financial statements to help ensure that investors have access to all of the necessary information before investing. Once an internal auditor has completed the examination, the findings are presented in a formal report. The audit report describes how the audit was done, what it discovered and, if necessary, suggestions for what improvements could be made. It is usually presented to senior executives at the company. If changes are recommended, it's common for an internal auditor to be asked to complete a follow-up audit to determine how well the advised changes have been executed.Properly-managed publicly-traded companies also carry out internal audits to ensure that the company is complying with federal and state regulations, including those mandated by the SEC. However, companies must also ensure that their accounting practices follow the accounting guidelines as laid out by the Generally Accepted Accounting Principles (GAAP).