...companies’ internal audit function weighs heavily on the direction and tone provided by its Chief Audit Executive that operates within the organization on a daily basis. Stakeholders in a business must have confidence that the CAE of the internal audit function will work to make certain the interests of the stakeholders are top priority. The primary goal of the CAE is to sustain a level of objectivity and independence that ensures that public trust is not lost and value is consistently being added to the entity. Even with well-defined roles and responsibilities, issues may arise within management that requires attention and actions to be taken. Pat Goodly is an example of how even in a tightened governance structure, there still lies problems that should be addressed. Position in the Organization The internal audit function is created by the board of directors and the audit committee. Each individual that operates within the internal audit function including the CAE has their roles and responsibilities defined by the audit committee and board of directors. The primary purpose of the audit committee is to oversee the organization’s internal audit function, which plays a vital role in the aspects of corporate governance and risk management. The reporting environment in which the CAE operates in is discussed in Standard 1110. IIA Standard 1110 states that “the chief audit executive must report to a level within the organization that allows the internal audit activity to fulfill...
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...Internal audit’s role in modern corporate governance Thought leadership series Risk and Advisory Services Internal audit’s role in modern corporate governance Recent events have highlighted the critical role of boards of directors in promoting good corporate governance. In particular, boards are being charged with ultimate responsibility for the effectiveness of their organisations’ internal control systems. An effective internal audit function plays a key role in assisting the board to discharge its governance responsibilities. Yet how does the board – and its audit committee – satisfy itself that internal audit is functioning effectively and efficiently? The board’s responsibility for internal controls Through working with a broad range of organisations in Hong Kong and internationally, KPMG has identified a number of best practices in relation to the role played by the board audit and/or risk management committees. s Recent events have highlighted the critical role of boards of directors in s s s s s s s Assessing the scope and effectiveness of the systems established by management to identify, assess, manage and monitor the various risks arising from the organisation’s activities. Ensuring senior management establishes and maintains adequate and effective internal controls. Satisfying itself that appropriate controls are in place for monitoring compliance with laws, regulations, supervisory requirements and relevant internal policies....
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...CHAPTER 1 INTRODUCTION 1.1 Research Background The auditor’s roles are to provide an opinion on financial statement and to ensure that the statements are based on true and fair image of company performance to the stakeholders. They are authorized in checking the accuracy of business records. Opinions given by the auditor gives an added credibility to the financial statements (Maqableh, 2014). Commonly, investors often rely on financial statements provided by auditor in making investment judgement and increase the productivity of financial markets. Financial statements provided by the auditors are often reviewed as credible, unbiased opinion that truly reflects the company financial positions. There’s no doubt that auditor independence is the core of auditing profession when establishing its objectivity and integrity. Auditor independence, in particular, indicates the ability of an auditor to disregard any influence or control when conducting an opinion (AAA, 1973). Therefore, auditor must be, and must be seen to be independent of company management. Lack of independence causes audits to be considered to have little value (Johnstone, Sutton, & Warfield, 2001). This is further supported by Elliott and Jacobson (1998) that a particular interest may trigger a risk that could weaken the outcome of the audit which in turn impairs the auditor independence. Hence, independence is fundamental to the purpose served by auditors (Moore et al., 2002). This study is limited to...
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...Internal audit Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.[1] Internal auditing is a catalyst for improving an organization's governance, risk management and management controls by providing insight and recommendations based on analyses and assessments of data and business processes. With commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called internal auditors are employed by organizations to perform the internal auditing activity. The scope of internal auditing within an organization is broad and may involve topics such as an organization's governance, risk management and management controls over: efficiency/effectiveness of operations (including safeguarding of assets), the reliability of financial and management reporting, and compliance with laws and regulations. Internal auditing may also involve conducting proactive fraud audits to identify potentially fraudulent acts; participating in fraud investigations under the direction of fraud investigation professionals, and conducting post investigation fraud audits to identify control breakdowns and establish...
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...of Accountancy, Universiti Utara Malaysia fhanim@uum.edu.my Abstract: This study aims to provide a concise view of the background of Saudi Arabia‟s legal system, important regulations and monitoring policies related to the corporate governance followed by the Saudi government to enhance the attractiveness of the business environment. In so doing, this study attempted to provide an overview on corporate governance in the emerging markets and more specifically in Saudi Arabia. Additionally, this study has shed lights on the main monitoring devices which play a significant role in regulating and developing the Saudi business environment. The focus was on some corporate governance mechanisms that might affect firm performance including board composition (BODCOM), CEO duality (DUAL), board size (BSIZE), audit committee independence (ACIND), audit committee activities (ACMEET) and audit committee size (ACSIZE). Keywords: Corporate governance, firm performance, emerging countries, Saudi Arabia. 1 British Journal of Arts and Social Sciences ISSN: 2046-9578, 1. Introduction The topic of corporate governance is assuming growing importance in emerging economies at the same time that financial scandals in the U.S. and other countries (Enron, Arthur Anderson, WorldCom, and Adelphia) have resulted in demands for improved corporate governance practices in developed economies...
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...independence and genuine effectiveness of the audit function? Search the findings of academic papers and other published sources to support your view.” Introduction An institutional investor is an organization that invests on behalf of the organization’s members. These investors are a part of corporate governance for companies and they have large amounts of money to invest. In Malaysia, there are five leading institutional investors; Employees Provident Fund of Malaysia (EPF), Pertubuhan Keselamatan Sosial (Social Security Organisation), Lembaga Tabung Haji (Pilgrimage Board), Khazanah Nasional, Permodalan Nasional Berhad (National Equity Corporation) and Lembaga Tabung Angkatan Tentera (Armed Forces Fund Board) have taken various measures over the years to put better governance practices in their investee companies. As they can afford to buy more shares and bonds, sometimes automatically put them as majority and proactive shareholders. They have power to influence over management decision making, conduct regular engagements with management of companies, placing new shares, demand meetings with the senior managements of companies regards to their performance, vote on key issues at general meetings and communicate on other matters affecting shareholders' interest. The institutional investor which is an external party that are independence from the management can be seen as a check and balance mechanism in enhancing the effectiveness of the audit function because of their unique position...
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...Yuliya Gaydarenko Prof. Franklin Unit 4 – Rough Draft July 11, 2013 The compliance audit, like other audit activities, is intended to provide feedback to management and the audit committee about the control environment, ongoing compliance and conditions for potential risk. The compliance audit should evaluate the effectiveness of the compliance management program, including policies and procedures, training, monitoring and consumer complaint response. A financial institution’s audit committee should determine the scope of an audit and the frequency with which audits are conducted. Examiners are seen questioning institutions about their overall compliance program management and digging into the elements of policies and procedures, training, and quality control assessment. Overlying compliance program management is the role of internal audit. Regulatory guidance and best practices have helped define which elements are necessary to help an organization mitigate risks associated with compliance. Some of the basic elements include: designation of a compliance officer, policies, internal processes and controls, regulatory change management, quality control, consumer complaint response process and audit (Sullivan, 2011). The two elements of assessing the overall effectiveness of a compliance program are quality control and audit. The end goal of a quality control function is to monitor how well departmental policies and procedures are being executed. Ultimately, the...
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...Audit Committee Material Weaknesses in Smaller Reporting Companies December 2nd, 2010 OUTLINE: I. SUMMARY OF THE ARTICLE II. PROBLEM STATEMENT III. SUGGESTIONS FROM THE AUTHORS IV. RELEVANCE TO AUDITING ENVIRONMENT V. CONCLUSION I. Summary of the Article This report summarizes the article published by Gramling, Audrey A, Hermanson, Dana R, Hermanson, Heather M in the CPA journal of 2009. The main focus of the article is to show the importance of audit committee in auditing and analyze problems of small companies face in developing effective audit committee. The critical issue of the article is material weaknesses related to audit committee and possibility of management’s override of internal control within small companies. Before, the Sarbanes-Oxley Act, audit committees in public companies were under more pressure to understand not just a company's financial statements, but to challenge management and auditors on key accounting, internal control and compliance issues. After the financial scandals that caused firms like Enron and WorldCom to collapse, audit committees have risen from relative darkness to center stage in modern corporate world. As it’s indicated in the article, the new role, the typical audit committee is charged with many duties. Because new role of audit committee increased complexity and accountability, it's easy for directors of small public companies to feel besieged when...
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...Guidance for audit committees Reviewing auditor independence November 2003 The Combined Code on Corporate Governance – July 2003 C.3 Audit Committee and Auditors Main Principle: The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company’s auditors. Code provisions C.3.1 The board should establish an audit committee of at least three, or in the case of smaller companies two, members, who should all be independent non-executive directors. The board should satisfy itself that at least one member of the audit committee has recent and relevant financial experience. C.3.2 The main role and responsibilities of the audit committee should be set out in written terms of reference and should include: • to monitor the integrity of the financial statements of the company, and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them; • to review the company’s internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent directors, or by the board itself, to review the company’s internal control and risk management systems; • to monitor and review the effectiveness of the company’s internal audit function; • to make recommendations to the board, for it to put to the shareholders...
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...of office and removal of directors * Restriction on directorship * Method of computation * Directors’ training 2. Audit committee * Composition of audit committee * Chairman of audit committee * Written term of references * Function of the audit committee * Attendance of other directors and employees * Procedure of audit committee * Reporting of breaches to the exchange * Right of the audit committee * Quorum of an audit committee * Retirement and resignation * Review of the audit committee 3. Auditors * External auditor * Removal or resignation of external auditor * Review of statement * Right to request for meeting 4. Corporate governance disclosure * Disclosure pursuant to the code * Additional statement by bod 5. Internal audit Corporate Review A. Vision and mission B. Strategic intents C. Corporate milestones D. Awards and ranking E. Financial highlight F. Corporate sustainability statement 1. Marketplace 2. Community 3. Environment 4. workplace G. Bod H. Bod’s profile I. Regulation J. Corporate governance statement 1. Establish clear roles and responsibilities a. Function of bod and management b. Role and responsibilities c. Formalised ethical standard through Code of Ethic d. Strategies promoting sustainability e. Access to information...
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...The Sarbanes-Oxley Act (SOX) has affected many audiences within the audit and business sectors. One of the major audiences the act continuously affects is the audit committee of public company board of directors. According to an online resource called the CPA Journal written by Stuart Buchalter and Kristin Yokomoto, since the 1940’s audit committees have been an important and necessary function of public companies financial reporting. In the 1970’s the New York Stock Exchange (NYSE) required board of directors of certain companies to appoint an audit committee. As time progressed more companies were utilizing audit committees and the committees grew in size to include members from NYSE, Nasdaq, and CPA firms. Committees continually practice certain policies and procedures, such as the SOX, in order to ensure high quality financial reporting. The SOX has made a major impact toward audit committees by changing various aspects of their composition, roles and responsibilities, and the liabilities they hold. First, the board of directors directs the composition of an audit committee and assigns a minimum of three members. The Sarbanes-Oxley Act requires that each member be independent, or must not have any relationship with the company that interferes with judgment or must not have worked for the company for the past three years, and at least one member be a financial expert. According to an online resource called the CPA Journal written by Stuart Buchalter and Kristin Yokomoto...
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...time, internal auditing functioned as a junior to the independent accounting profession, and attesting to the accuracy of financial matters was the profession's main concern. Now internal auditing has established itself with a far broader focus. Modern internal auditing provides services that include the examination and appraisal of controls, performance, risk and governance throughout public and private entities. Financial matters represent only one aspect of the purview of internal auditing. Requirement to have Internal Audit Activity In January 2004, the US Securities and Exchange Commission (SEC) had approved new rules proposed by the New York Stock Exchange (NYSE) and NASDAQ Stock Market Inc. (NASDAQ) designed to improve their listed companies' governance standards. The New York Stock Exchange rules include a requirement, recommended by the IIA, that New York Stock Exchange - listed companies are required to have an internal audit...
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...value of an audit to investors is critical because it allows them to assess performance, which in turn allows them to vote on organizational matters such as a board of directors. It also helps them make decisions on whether or not to buy or sell stock. As for creditors, an audit report serves a basis for realizing performance. With this they are able to make loan decisions and analyze risk. As far as the community as a whole, an audit reports shows true performance and therefore helps others understand its ability for future growth. With that being said, people have a chance to make investment decisions for the future. B. An audit of internal control is vital for the investing public because it assures them that there is no corruption and that their money is safer. Before 2002 auditors weren’t required to test internal controls, which lead to huge controversy over the collapse of several big time companies. Now, auditors serve somewhat as investigators to make sure internal controls are correctly doing their job. It is also management’s responsibility to assess and report the quality of its internal controls over financial reporting. C. An audit committee is responsible for hiring and firing an audit firm. The audit committee is established by a company as an independent subcommittee under the board of directors to provide oversight for audit functions. Because this committee is independent, it reduces any possible risk of bias when they elect the external audit. 1-40 A...
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... Individual Assignment HIH Insurance Report Student Name: Jinyun Wang Student ID: MIT122634 Lecturer Name: Susan Currie Tutor Name: Susan Currie Due Date: 29 / 1 / 2014 Submitted date: 7/ 2/ 2014 by email Executive Summary The auditing profession plays a significant role in industrialized economies for many years. In the insurance industry, the manner of auditing profession is regulated. The collapse of Health International Holdings (HIH) was recorded as the biggest corporate collapse in the history of Australia. Also an investigation of Royal Commission was warranted by the HIH collapse. Two questions considered in the failures of HIH Insurance: Did the auditors implement their responsibilities and roles? Did the auditors fulfil their auditing work ethically? This report provides an analysis of auditing issues arising from the collapse of HIH Insurance. Among factors that have gave rise to the corporate failure of HIH Insurance, that of the ethics of auditing profession, roles of auditors and effectiveness of audit committee have regarded as particular significance. Contents Executive Summary 2 1. Introduction 4 2. Discussion 5 2.1 Audit Independence 5 2.2 Audit Committee 7 2.3 Ethical Considerations 8 3. Conclusion 10 Reference List 11 1. Introduction HIH Insurance was established when MW Payne Liability Agencies Pty Ltd was incorporated by Michael Payne and Ray Williams joining together to do business of insurance underwriter in Australia...
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...RECOMMENDATIONS Membership of audit committee According to the Malaysian Code of Corporate Governance, to ensure that no one individual group dominates the board’s decision making, there should be an equal number of executive and non-executive directors (inclusive of independent non-executive directors) in the Board of Directors. However, based on the hierarchy of the Board of Directors in Flat Cargo Berhad, there are more executive directors than non-executive directors. It is unhealthy scenario as non-executive directors’ views might not be taken into consideration in the company’s important decision making process as they have the minority say. On the other hand the Code for an audit committee states that there should at least be 3 members of whom the majority of them should be independent and all members should be non-executive directors. Although the audit committee of Flat Cargo Berhad reveals that the majority of the committee consist of independent directors but they are all not non-executive member. Therefore, Mr. Ali Bin Ahmad is not a suitable candidate of the committee. We should understand the roles of Executive and Non-Executive Directors. As we know, Executive Directors are the internal member of the company who are involve in decision making of the management team and daily operation. Non-Executive Directors are the outside director who may hold or may not hold a share in the company and they may be hired due to their expertise and...
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