Does personal threat to internal auditors audit independence?

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Base on the result, 50% responses agree that, personal threat does a threat to internal auditor independence. Personal threat is consider as independence in appearance. Independence in appearance related to a third party's perception regarding the auditor's independence. This is because, if the third parties think that the auditor appears to be independent, even though the auditor is independent in his/she mind, the third parties don't trust the auditor due to certain circumstance or relationships which are incompatible with independence and the promise of assurance that the auditor is supposed to provide is lost. http://sites.google.com/site/auditingregulation/auditopedia-1/auditor-independence-1

Which of the following is generally considered to be a major reason for establishing an internal auditing function?

A

B

13

43%

C

NIL

NIL

D

12

40%

According to the graph, majority says that, the main reason for establishing internal auditing is to safeguard resource entrusted to the organization. This is because internal auditing is a bridge between management and the board. Besides that, management responsible is to established and maintains a system of internal controls within an organization. Moreover, management is charged behalf of organization stakeholders. Therefore, for independent and effective internal control, management needs help from internal auditor to understand organizational risk and internal control available to mitigate the risk and provide recommendation for improvements. If organizations do not have an internal audit function, they will run the risk by relying on management who may not have proper skills, independent and objective opinions on internal control. Apart of that, internal auditors perform their role by working to the organization to help them understand the consequence of risk and ineffective processes to manage them.

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Question 3

How internal auditors independence can be strengthen?

A

16

53%

B

3

10%

C

2

7%

D

9

30%

According to primary result 53% of responses stated that internal auditor's independence can be strengthen by report directly to audit committee. This is because audit committee and internal auditors are interlock to goals. Whereby, internal auditor independent when they are render impartial and unbiased judgment in the conduct of their engagement. The main reasons why auditor independence can strengthen by report to audit committee because audit committee is group of people who are independent and should be formed to implement and support the oversight function of the board, specifically in areas related to internal control, risk management, financial reporting and audit activities. Besides that, the audit committee is aware of the full scope of all services that the auditor's provided. There are several benefit when internal auditor report directly to the board audit committee. The audit committees able to directly or critically analyze and evaluate the internal audit function and contribute to fulfill the internal control. These reinforce the audit committee's knowledge of the business risk when dealing with management and stakeholders. http://www.kpmg.com.my/aci/CTrends_July04.pdf

Question 4

Does a current experience of internal auditors help to reduce threat to independence?

Strongly Agree

3

10%

Agree

15

50%

Neutral

8

27%

Disagree

4

13%

Strongly Disagree

NIL

NIL

Majority (50%) says that, current experiences of internal auditor help to reduce independence. This is because, internal auditors are well known in the industry knowledge and specialization base on the experiences. The current skills that been practice by internal auditors are organizational skills refers to work paper, time management and detail work. Meanwhile, interpersonal skills refer to influence and communication and leadership and teamwork. Lastly technical skills refer to risk and control and computer aided auditing techniques. The reason why internal auditor experiences help to reduce threat to independence is because auditor able to adobe their self to any situation in the organization whether they are new internal auditor, practicing auditor or chief audit executive (CAE). Apart of that, experiences also help internal auditor to detect more potential material misstatement in the organization. http://mgt.guc.edu.eg/wpapers/023mostafa_habib2010.pdf

Question 5

Does risk management affect internal audit independence?

Strongly Agree

1

3%

Agree

13

43%

Neutral

6

20%

Disagree

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4

14%

Strongly Disagree

6

20%

Base on the result, majority agree that risk management does affect internal audit independence. This is because the role and responsibilities of internal auditor has increase and their independence is affected. This can be understand from the definition of risk management says that risk management is a coordinated activities to direct and control an organization with regards to risk. Meanwhile, internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It help an organization accomplish it is objective by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance process. Therefore, the role of internal auditor has increase because they provide objective assurance to the board and senior management on the effectiveness on the risk management activities in helping ensure key business risk are managed appropriately and the system of internal control is operating effectively. Apart of that, if the internal auditors interfere in certain roles of risk management committee, there will be an independence problem arises among risk management committee and internal auditor such as setting the risk appetite, imposing risk management processes, providing assurance to the board and management and making decision on risk response which is management's responsibilities and implementing risk responses on management's behalf. Besides that, if there is high risk procedure in the organization, the auditors are unable to do a proper audit and they are unable to disclose the financial statement properly.

http://www.rsmi.com.au/rsbcwr/_assets/main/lib90014/interfacing%20risk%20management%20and%20internal%20audit%20-%20conflicting%20or%20complementary.pdf

http://www.iia.org.au/pdf/FrequentlyaskedQuestions.pdf

Question 6

Does a non audit service of internal auditor affect their audit independence?

Strongly Agree

8

27%

Agree

18

60%

Neutral

3

10%

Disagree

NIL

0

Strongly Disagree

1

3%

Base on the result, 60% of responses agree that non-audit services do affect internal audit independence because non-audit services is an additional service which provided to audit client. This is to expand the scope of auditing services which provided by auditor to their client such as tax planning, consulting related to mergers and acquisitions and information system. Apart of that when provide non-audit services to the same client, the auditor need to be careful because there are circumstances where threats to independence appear. This is because the provision of some of these services might provide either a real or perceived threat to independence. For instance, the management makes decision when performing the non audit service while auditors also work in performing the non audit services as well. Therefore, the auditors will not be motivated because they need to do the non audit services and also their work which is auditing. This may cause the auditor not to perform well in auditing especially in checking the internal control of the organization. These charges are made when auditor allowed inappropriate accounting treatment because their independence has been compromised by the non-audit fees payable by the client.

http://www.medwelljournals.com/fulltext/?doi=pjssci.2011.100.107

http://www.auditskills.com/archives/201009a.html

http://eng.hi138.com/?i154890

Question 7

Do highly developed risk management system in place that result in the design of robust control to address risks that are assessed on an ongoing basis?

Strongly Agree

1

3%

Agree

16

53%

Neutral

8

27%

Disagree

NIL

0

Strongly Disagree

5

17%

The result has been stated that 53% of responses agree that highly developed risk management system in place can result a robust control to address risks in the organization. This is because the organization plays a role in ensuring successful risk management but management's primary responsibility is to identifying and managing risk and for implementing risk management in a structured, consistent and coordinated approach. COSO's framework says that the role of internal audit could and should plays in the entire risk management process. This is because it assists the management and the board of directors or audit committee by examining, evaluating reporting on and recommending improvements to the adequacy and effectiveness of the entity's (The IIA Research Foundation). When the risk management works together with internal audit, it helps the organization to understand the business objectives and not just business risk. Besides that, risk management and internal audit evaluated the maturity of the risk management activity and gives consideration to management's risk appetite in reporting. There are three ways internal audit could carry out based audit objectives. (1) Is targeting risks as opposed to processes in auditing. (2) Internal audit can perform in moving toward risk based auditing is monitoring risk management maturity. Furthermore, monitoring the maturity of risk management process provides insight on the future sustainability of risk management effectiveness. (3) Internal audit can perform in moving toward risk based auditing is concerned with audit report writing. By analyzing detailed audit report, management able to identify the business risk by emphasizes the ability of the organizations effectively or ineffectively.

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Question 8

Which of the following is generally considered to be the primary purpose of an internal auditor's evaluation of the adequacy of internal control?

A

7

23%

B

11

37%

C

4

13%

D

8

27%

Base on the result, the highest respondent answer B which is 37% said that the primary purpose of internal control is to determine the extent of reliance the internal auditor can place on the established internal control in the process of evaluating the financial statement prepared by organization. This is because internal control consists of policies and procedures to design to provide management with reasonable assurances that the companies achieve its goal and objectives. Besides that, auditor's focus in auditing the financial statement and internal control which is control over the reliability of financial reporting and compliance with laws and regulation that could materially affect financial reporting. This statement has been support by previous research says that it is a monitoring tool on internal control for shareholders and has focused on two dimensions such as (1) examining the substance and variety of voluntary internal control disclosures in annual report and (2) determining the usefulness of internal control disclosures to users of financial statement. Besides that, base on Sarbanes-Oxley Act internal control are been published by public companies as proxy for quality of internal control. This is because the usage of disclosure as a measure on the quality of internal control of publicly traded companies base on two assumptions. (1) Publicly traded companies have the resource to develop and implement comprehensive internal controls that provide shareholders with assurance on the validity of the internal operating processes and accuracy of financial reports. (2) Publicly traded companies use disclosure as monitoring tool to gain shareholder's confident on their responsibilities on internal control.

Question 9

Which components of internal control affect more audit independence?

A

13

43%

B

5

17%

C

10

33%

D

2

7%

According to questionnaire result, the most affect components of internal control are A, the Control Environment (43%). This is because control environment consists of the actions, policies and procedures that reflect and overall attitudes of top management, director and owners of an entity an internal control and it is importance to the entity. ( audit book pg294) it is a product of integrity and ethical, human resource policies, commitment of competence as well as management's philosophy and operating style. The control environment is further affected by the organization's structure and accountability relationship. Therefore, control environment has the opportunity to influence on the decision and activities of an organization and provides the foundation for the overall systems of internal control. Apart from that, if the foundation is not strong and the control environment is not positive, the overall system of internal control will not be as effective as it should (standards for internal control in new York state government, 2007, Thomas P. Dinapoli State Comptroller)

Question 10

Which of the following are effect internal audit risks?

A

3

10%

B

2

2%

C

4

4%

D

10

34%

E

11

37%

According to primary data, familiarity threat is the highest rank (37%) for internal audit risk. Familiarity threat is where the auditor over-influenced by the personality and qualities of the management. This close relationship may influence client's business ambience. Familiarity threat occurs when auditor has close relative of the audit team working in a senior position in the client company. Besides that, if the former partner of the audit firm being a director or senior employee of the client firm or long association between specific auditors. Moreover, if familiarity increases with company management, it may affect auditor's independence. However the auditor does not want to imperil their career because there are the employees of the organization.

http://www.icam.mb.ca/interpretations_204.1-204.6.html#threats

http://www.bizactions.com/n.cfm/page/e105/key/160409113G1019J1067945P0P10167827T0/

http://rulebook.accaglobal.com/text/acca_rb_3_3/5.html

http://www.irca.org/inform/issue20/APG.html

http://www.aicpa.org/Research/Standards/CodeofConduct/Pages/et_100.aspx

http://220.227.161.86/10876p821-826.pdf

http://www.icaew.com/en/technical/ethics/auditor-independence/auditor-independence-general

Question 11

Do Malaysian internal auditor competent with current skills?

Strongly Agree

2

7%

Agree

10

33%

Neutral

17

57%

Disagree

1

3%

Strongly Disagree

NIL

0%

According to the primary data result, majority (57%) stated that there is no relationship between internal auditor and current skills. This is because the current skill which internal auditor practices in their working environment is competent well according to the Rule of Conduct by Institute if Internal Auditor (IIA) which says that auditor shall engage only in those services for which they have the necessary knowledge, skills and experiences. Besides that, internal auditing services shall perform in accordance with the standards for the profession practices of internal auditing. Meanwhile, internal auditor shall continues improve their skill and the effectiveness and quality of their services. Therefore, there is no changes have been made by any regulatory bodies regarding skill that practices in Malaysian internal auditors.

Question 12

What are the skills needs to be exercised by internal auditor

A

12

40%

B

3

10%

C

5

17%

D

10

33%

According to primary data analysis, the skill needed by internal auditor is strong interpersonal skills which are the highest response of 40%. Interpersonal skills reflect to influence and communication, leadership and teamwork, change management and conflict resolution (the institute of internal auditors- Australia, 2010). The ability to employ good interpersonal skills is a clear advantage to the performance of audit work. This is because the development of effective interpersonal skills can improve the quality of audit produced. Besides that, excellent interpersonal skills required the auditor to understand the audit finding and the ability to accomplish their responsibilities effectively. Moreover, this development can lead to increase pay and also promotional opportunities. Meanwhile, it helps internal auditor to interact with co-workers and auditors effectively. By using interpersonal skill, internal auditor able to prepare and give an effective presentations in the meeting and able to inform the management regarding audit result.

http://www.emeraldinsight.com/journals.htm?articleid=1502578&show=html&

Question 13

Does it easy to comply with IIA standards?

Strongly Agree

4

13%

Agree

19

63%

Neutral

7

23%

Disagree

NIL

0%

Strongly Disagree

NIL

0%

Base on the result, 63% of responses agree that, it is easy to comply with IIA standards because for international standard, Professional Practices of Internal Auditing is an outline the internal audit profession. These provide a framework for the internal auditor to follow the guidance, pronouncements and regulations and may provide clarification and delineation of acceptable and recommended processes. Eventually, Institute of Internal Auditor (IIA) is the internal audit profession's acknowledged leader, recognized authority and principal educator. Besides that, IIA also provide guidance on assessing, maintaining and improving quality within the internal audit activity.