Research Paper on "Information Technology (IT) Auditing"

Research Paper 8 pages (2289 words) Sources: 1+

[EXCERPT] . . . .

Internal Auditing

IT Aduiting

Auditing

Difficulties of establishing good internal auditing practices in a company

Many companies have developed and strengthened their internal audit department in order to meet the complexities that have been associated with companies, with many companies becoming sophisticated. There is need for a strong internal audit department that is charged with the obligation of conducting an independent and objective evaluation into the business operations in order to prevent, detect, and reduce inefficiencies and fraud that can occur within the businesses. Internal auditors are therefore employees of the organization as opposed to external employers who are external parties and are not answerable to the company management Hightower, 2009.

Operational audits, compliance audit, financial audit and information systems audit are some of the examples of internal audit that is carried out by internal auditors.

The fact that internal auditors are company employees creates a challenge in the establishment of an efficient internal audit department and good internal audit practices. First, the problem of establishing an independent internal audit practice has become a challenge. This is because internal auditors of the company owe their loyalty to the company and must act within the company rules and mandate Hightower, 2009.

Their roles are defined by the company, which they are expected to give an opinion on. This may impair the characteristics of being independent, which is fundamental in auditing.

Moreover, the independence of internal auditors may also be affected by the fact that they work within the company and might develop close friendship / relationships with the employees whose work they expect to audit Reding, 2007.

Furthermore, internal auditors may be expected to report to the management of the company or the internal audit committee. Management are part of the employees whose functions may be reviewed by the auditors hence impair the characteristics of independence.

The second factor that may affect the establishment of internal audit practice is that of competence. Internal auditors should be competent and should possess high professional qualification and ethics. Most companies may not be willing to incur the high cost that may come with the need to hire competent auditors. In addition, the practice of competence may be adversely challenged by the fact that internal auditors are not controlled and supervised by the accounting regulatory bodies Reding, 2007.

They may therefore fail to comply with the auditing standards and practices that are core in the function of auditing.

Thirdly, an effective internal auditing practice requires that confidentiality is complied with. After accomplishing their mandate, internal auditors are expected to report their findings to the management representatives in order for appropriate actions to be taken. It should however be noted that the decision to execute the recommendations entirely depend on the management. This thus implies that the management can decide to ignore the practice of following the decision of the auditors hence becoming ineffective Pickett, 2005.

Since internal auditors are expected to report only to the management, important information will not be availed to the stockholders and other parties. This practice could affect the functionality of the internal audit department.

Besides, the establishment of good internal practices can also be hampered by poor communication between the internal auditors and management. In many companies, it has been proved that the channel of communication between the internal auditors and the management is very poor Hightower, 2009.

Internal auditors may therefore find difficulties in communicating their findings or persuading the management to act on their recommendation. Good communication practice can be created by making sure that the company's policies encourage progress reports and develop effective communication channels.

Despite the difficulties that might be faced in establishing good internal audit practices, companies should strive at supporting the development of internal audit function to make them effective Hightower, 2009.

Companies with the objective of thriving must adopt good internal audit practices not an option but as an important ingredient in realizing growth and preventing pilferages.

Establishing an auditing department and what interfaces would be required into the corporate infrastructure

An establishment of a strong and efficient internal audit department requires the development of the necessary infrastructure required in making the work of internal auditors effective. The infrastructure to be developed should assist curb the various challenges that face the establishment of an internal audit department, to begin with, I would recommend for the formulation of appropriate audit procedures and policies. Policies that guide the functioning of the internal audit department must promote the adherence to the audit standards, support compliance to audit ethics, promote quality and guarantee due care. Policies must also be formulated to ensure that the performance standards are above question. This can be done by ensuring an appropriate communication line is established, progress monitors, management of internal audit function realized, and proper planning made Pickett, 2005()

In developing an internal audit department, I will also ensure that sufficient resources are availed for the audit purposes. The budget allocated to the internal audit department should be enough to enable the department carry out its mandate without paralysis or constrains. Appropriate tools should also be made available to the department to enable the department have the capacity to execute the task fully Thomas & Parish, 1999.

The resources allocated will be enough to ensure that auditors are assigned projects that they can do.

Another infrastructure that should be developed is the establishment of an audit committee, which will supervise the function, and the performance of internal auditors. The composition of the audit committee should incorporate external parties and directors without management roles. This will reduce the conflict of interest and duty while at the same time ensuring that internal auditors' decisions are acted upon. The audit committee should intermittently organize meetings with the internal auditors and protect them from victimization by management or sabotage of their roles by other managers.

Furthermore, the establishment of an internal audit department should focus on strengthening of the internal controls rather those in targeting employees. This will minimize friction, prevent the commission of fraud, and minimize loss of a company's losses. Internal auditors that will be employed in the internal audit department should be required to obtain qualification and adhere to the professional code of ethics.

Establishing a precise and focused internal audit mission and objectives is also important in ensuring effective internal auditors. An internal audit department that knows their mandate and vision will remain focused on reducing the risk to the company and aim at improving the quality of their work. Notwithstanding, the mission and vision of an internal audit department will help in the evaluation of the performance of internal audit department and guide the execution of their mandate. Vision includes the strategic objectives that will assist in the determination of the solutions to the numerous impediments that might affect the internal audit department.

Finally, the establishment of an effective internal audit department must ensure there is independence and objectivity of the internal auditors. The internal audit policies will be made in a way that limits the development of relationships that can impair the findings of the internal audit. Objectively will be simultaneously ensured by eliminating the interest of duty and personal interest Corporate governance: the role of internal control, 2007.

The management will not alter the remuneration of the internal auditors in and the management shall not be allowed to intimidate or influence internal audit reports to their favor. Establishing an effective internal audit department therefore involves the formulation of policies that supports proper communication, employment of qualifies staff, stating the vision of the internal audit department and justifying to the management the value of internal auditing.

Implementing policies

There is no need for any company to formulate policies that it cannot implement. It is only through the implementation of policies that the internal audit department will achieve the expected results. In implementing the policies, the management must first ensure that the employees are recruited based on set qualifications and standards. The employment of the internal audit staff must be set at a level that is at par with those of external auditors. The human resource department that is mandated to interview and select the employees to recruit must be instructed to follow strictly the set qualification in employing qualifies staff.

The second way of implementing the policies will involve the coordination and cooperation of all the pertinent departments. This will be assured by implementing laws that binds the related departments to work together hence ensure that the internal auditors are supplies with all the relevant documents and information needed for their work. Moreover, the management must organize events where the different departments are encouraged to support the work of internal auditors and have the work of internal audit department clearly explained.

The implementation of the policies will also be done through establishing a clear communication channel within the company's organization structure. A clear organization structure that incorporates the internal auditing department and how it is required to make its reports clear is fundamental in finding solution to the problem… READ MORE

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