Internal Auditor Independence

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ABSTARCT/PURPOSE

– This paper critically analyses the independence of the internal audit function through its relationship with management and the audit committee. Given the growing role of internal auditing in contemporary corporate governance and independence has gained renewed attention.

INTRODUCTION

The role of internal audit is to provide independent assurance that an organization’s risk management, governance and internal control processes are operating effectively. Internal auditors deal with issues that are fundamentally important to the survival and prosperity of any organization. Unlike external auditors, they look beyond financial risks and statements to consider wider issues such as the organization’s
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The ‘Self Interest Threat’ occurs when a member of the assurance team could benefit from a financial interest in with an assurance client example a material indirect financial interest from clients or a loan or a guarantee to or from clients or directors. It notes that management functions involve leading and directing an entity including making significant decisions regarding the acquisition, deployment and control of human, financial, physical and intangible resources. Other examples include activities that would generally be considered management functions such as setting policies and strategic direction, authorizing transactions and deciding which recommendations of the firm or other third parties should be implemented, taking responsibility for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework; and taking responsibility for designing, implementing and maintaining internal control. Therefore, if a firm does provide any internal audit services to an audit client it…show more content…
Management employs internal auditors, yet these same internal auditors review the performance of management and other activities within the organization. In addition, management often relies on internal auditors for consulting services and incorporates audit recommendations into the reengineering of business processes. In their role as assurance providers, auditors evaluate management’s processes. The combination of the internal auditor as an employee of the organization, the increasing importance of internal audit activities, and the growing demand for internal audit consulting activities lead to escalating concern about internal auditor independence and
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