Relationship Between Internal Auditors And Management Accounting Essay


This essay will discuss whether the internal auditors ought to take responsibility for the current economic turmoil. In brief, it will mention the functions of internal auditors and the relationship between internal auditors and management. The discussion will consider an argument. One side is that people support the internal auditors are expected to take some responsibility for the financial downturn and the other side is that people think that the internal auditors are not expected to take some responsibility for the financial downturn. Examples will be listed and criticised in the essay. However, it will also include the opinion of writer. There will be a suggestion of writer to improve the internal auditor's role in the end of essay. The evidences will be collected from different methods, such as blogs, journal articles, and news.

The functions of internal auditors are to ensure that the systems of a company's management are operating effectively and all instituted procedures are being followed thoroughly. Internal auditors will also ensure that internal controls are effective. ACCA (April 2007) states the Glossary of Terms in the 2007 IAASB Handbook adds more words in the definition of internal auditing which is a slight difference from extent ISA 610 definition. There is no doubt that the IAASB want internal auditors can work regularly and shoulder more responsibility. Internal auditors play a significant role in a structure of company's operation. However, a good internal auditing should improve a company's operations and help the company with a systematic, rigorous approach to achieve its objectives. As the decline of the whole world's economics, recently, there is an argument occurred which is internal auditors should be blame for the financial downturn. Palczewski (June 2009) states it is hard to understand why so many internal or external auditors could not find out the risks in the mortgage approval process. Internal auditors should be blame, because they fail to assess the risk of borrowers' repayable ability for the loan. Actually, risk assessment is one of the significant components in an internal control of a company. As a responsibility of internal auditors, they are expected to examine the effectiveness of the internal control. Otherwise, the important critical factor in accomplishing internal audit quality is the auditor's competency and proficiency in a company's risk assessment. Hence, once internal auditors discover that there is a risk in mortgage of bank because of the borrowers' repayable ability; it is their responsibility to report this risk to the management in time to avoid the mortgage crisis.

Lady using a tablet
Lady using a tablet


Essay Writers

Lady Using Tablet

Get your grade
or your money back

using our Essay Writing Service!

Essay Writing Service

Springs (January 2010) reports that the credit card companies believe internal auditors can play an important part in protecting cardholders' data. The Payment Card Industry Security Standards Council is willing to offer the training and accreditation to internal auditors. More important aspect is that as the educator of internal audit profession's principle, the Institute of Internal Auditors encourage such development of education and the professionalism of internal auditors. In the matter of fact, this act endues more right and expectation to internal auditors so that internal auditors have to be responsible for their new work. If the credit card company suffer economic losses due to internal auditors fail to protect the cardholders' data, the internal auditors should take whole responsibility for it.

However, NORRIS (August 2009) argues that he disagrees the opinion of Tom Palczewski who thinks internal auditors are expected to be blame for the mortgage crisis. Two observations are referred in NORRIS's article. One is that the management will not accept the advices from internal auditors. The other is that not all the banks have the specific expert for the mortgage in audit department. First of all, the responsibility of risk management is not included in internal auditors' role. It is external auditors' work to audit the risk management of a company. The bank management have the right to make a decision for the operation. Therefore, management can reject the risk assessment from internal auditors if they are willing to. Generally, the bank management are willing to accept some risks in the bank. After all, the management are the decision maker not the internal auditors and there is no standard to regulate that the management have to accept the advices of internal auditors. If there is a specialist who is specific in mortgage in an audit department of the bank, the management will more possibly accept the report of risk assessment from internal auditors. The management should employ a specialist for their audit department if they do not believe the internal auditors. Hence, it is wrong to say that internal auditors should be blame for the mortgage crisis, because the management fail to make the right decision and they ignore the report of internal auditors about the risk assessment.

Lady using a tablet
Lady using a tablet


Writing Services

Lady Using Tablet

Always on Time

Marked to Standard

Order Now

Financial Market Trends (2009) reports the financial crisis is mainly caused by corporate governance and the board of directors not the internal auditors. In many cases, the important information of exposures cannot convey to the board of directors or the leader of management so that they do not take a positive action to reduce those risks. That is an internal problem of the company. Marks (Mar 5, 2009) states internal auditors should pay attention to both the governance and risk management. Internal auditor leader is supposed to talk to the board of directors about what problems the internal audit team have found. Therefore, the internal auditors should not take responsibility for the financial crisis, but they are supposed to pay more attention to assess the governance and risk management rather than just to examine the high risk area of the company. Both internal and external auditors, the competence, independence and objective are the criticism to see if the opinions of theirs are true and fair. However, there is a great challenge to the independence of internal auditors, because internal auditors are employed by the company and they work for the company. The objectives of internal auditors depend on the management's requirements completely. Therefore, internal auditor may be influenced by the management, the audit committee and the board of directors. The result is that internal auditors may not approach all the areas of the company to get all information that they need, because if there is some information that the management do not want to be known by others, specially, for internal auditing, they may hide those information. No one can deny that this action will make internal auditors hard to assess the internal control accurately and completely. It will also decrease the reports' creditability of internal auditors and then it is difficult for internal auditors to give correlative information to external auditors. As a result of internal auditors cannot work independently, the effectiveness of internal audit will be decreased. On the other hand, the report of internal audit should be sent to the board of directors and senior management respectively and directly. The internal audit leader ought to talk to the board of directors directly. For that reason, the complete information can be report to the main responsible entities in the company.

To sum up, for the current economic turmoil, internal auditors should not take whole responsibility, because the economic turmoil cannot occur just by the mistake of internal audit. A company consist of many departments, such as the board of directors, management, financial department and so on. Although internal audit plays an important role in a company, it is just a small part of the company. It is unfair to place sweeping blame on internal audit. However, internal auditors are employed by the management, so they have the interest in the company. ACCA (November 2003) states that "Fraud is of considerable public interest because of its potentially devastating effect on companies and the consequence that can have for a wide range of investors, workers and other stakeholders." There is a doubt that internal auditors maybe cheat the senior management or the board of directors to be benefit from the fraud. So if there is a fraud in internal audit and then the company incur to loss. In the meantime, the external auditors cannot find out the fraud of internal auditors. There is no doubt that the internal auditors are supposed to be blame. Conversely, it is very difficult for internal auditors to find out the mistakes of the company if there is collusion in it. Generally speaking, internal auditors can be easily influenced by the chief financial officer, management and the board of directors. When internal auditors report something will conflict with chief financial officer's interest, perhaps the chief financial officer will not accept the report. Hence, it is unfair to criticise internal auditors if the chief financial officer or other department make mistakes or be unwilling to accept the advices from internal auditors and then result in the economic loss of company. Nowadays, more and more people pay attention to internal audit, they expect the internal audit can be more effective and efficient in an organisation. Therefore, the independence and competency of internal auditors are the most significant factors. The correlative institutes should do more research on the regulation of internal auditors.

Lady using a tablet
Lady using a tablet

This Essay is

a Student's Work

Lady Using Tablet

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Examples of our work