Executive Summary
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Due to high-profile scandals at the beginning of the century, regulators and the accounting profession worldwide have put forward a series of initiatives to repair the damage and restore faith in corporate governance.
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Globally, more companies are adopting corporate governance best practice.
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An independent internal audit function is widely recognized as an integral part of a company’s strategic objectives, corporate governance, and risk management.
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The internal audit standards issued by the Institute of Internal Auditors serve as authoritative guidance for members of the internal audit profession.
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Internal audit’s role is to evaluate the appropriateness and effectiveness of companies’ systems and processes, and to identify and manage risks present in the normal course of conducting business activities.
Introduction
Given today’s complex and rapidly changing management climate, companies must implement continuous improvements to achieve efficiency, and assure investors and other concerned parties of solid corporate governance.
The recent scandals at Enron, Worldcom, Parmalat, and others have raised the profile of corporate governance across the globe. Trust in the process of financial accounting, corporate governance, and auditing has been undermined by these high-profile corporate scandals. In response, regulators and the accounting profession worldwide have put forward a series of initiatives to repair the damage and restore faith in corporate governance. Furthermore, companies must continuously implement improvements to achieve effective and efficient management in order to assure the investors, other stakeholders, and concerned parties in general of its good and sound corporate governance. Globally, more companies, governments, states, and regulators are adopting corporate governance best practice, and placing more emphasis on improving corporate governance in companies, which in turn improves the confidence of investors and stakeholders in companies.
Worldwide legislative initiatives, of which the Sarbanes–Oxley Act (US) and Directive No. 8 (EU) are the most famous, make senior management responsible for establishing, evaluating, and assessing over time the effectiveness of risk management processes, systems of internal control, and corporate governance processes. In tandem, companies play a critical role in the national economy, or economies, in which they have activities. A country’s competitiveness, wealth, efficiency, and high level of economic growth may depend on the competitive nature of its companies. There is no doubt that a transparent and reasonable corporate governance structure has a positive impact on a company.
The audit committee is a subcommittee of the board of directors, and is widely recognized as an integral part of a company’s corporate governance, and, together with the internal audit function, they contribute towards the company implementing continuous improvements. In fact, one line of thought claims that the audit committee, especially in large organizations, could not possibly be effective without an efficient, effective, and independent-minded internal audit function.
As a result, the internal audit function has the potential to be one of the most influential and value-adding services available to a company’s senior management and board of directors. Furthermore, with the growing focus on corporate governance issues, organizations are increasingly exploring the potential benefits to be gained from establishing an effective and efficient internal audit function. Company boards must identify the opportunities, risks, and exposures that can determine success or failure. The establishment of an internal audit function can become an integral part of overall strategy, and assist in achieving corporate objectives.
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