Evolution of Internal Auditing

Evolution of Internal Auditing

Internal auditing has evolved to meet the needs of organizations, business, government and nonprofit in principle a demand for internal audit was needed when the administration of the old corporations recognized that annual audits were done by the accountants were not enough had the need for employees to have an interest beyond that of public accountants in order to ensure the development of the financial statements but the auditors originally focused all its efforts only on financial and accounting matters, then spreading to the demands of bags securities and securities commission and exhange giving greater administrative responsibility for the financial results were published.

Gradually the role of internal auditors was extended to encompass global policies and operational procedures. The companies belonging to defense industries were the first to demand these services. These companies recognized the need for reliable operations reports that were broadly used by management to make decisions. Often the reports were not denominated in dollars, but in terms of operational factors, such as quantities of parts in poor existence, adherence to plans and programs or product quality.

The work performed by internal auditors dedicated to ensuring the reliability of these reports operation had a better effect than additional audit effort devoted to financial and accounting matters.

As the size of the organizations became larger and more complex, they found additional operational problems to be solved were provided by internal audit. The role of internal auditors to determine whether the operating units in the organization followed the accounting and financial policies authorized was applied rapidly to include determining whether these were all operating policies of the organization and whether the policies set provided control strong and effective on all operations. The enlargement of the internal audit to these operational activities required internal auditors specializing in other disciplines such as economics, law, finance, statistics, computer processing, engineering and taxation knowledge.

We can clearly distinguish two stages in the evolution of internal audit. In the first phase it was restricted to the administrative own vision of the thought of Taylor and Fayol. Thus, it was clearly aimed to verify compliance with rules, processes and internal policies. Given the existence of different regulations, the internal auditor was primarily scope verify compliance with them. But as the external auditor aimed to verify the accuracy of the financial information of a company before external users, were these investors, creditors, banks and the state, internal audit was and will be clearly focused on serving the interests of the owners and directors of the same. To give effect to those objectives, it concentrated its interest in not only verify compliance with external regulations, but also of all those internal rules and for the purpose of preventing problems before other interests to the company procedures on the one hand, and realize the implementation of organizational goals and objectives, as well as protect the assets of the organization to various types of risks, including fraud was and must be a crucial objective.

The arrival of TQM in the first instance and then reengineering and continuous improvement led organizations to the need to address new features to internal audit.

Several relatively new events have been important in the evolution of the internal audit profession. The first was the regulation of the law of good practice abroad, 1977. The accounting provisions of the Act require companies held by the public to establish and maintain effective internal accounting control. To ensure compliance with these provisions, many companies established and expanded its internal audit departments.

Another event that affected the internal audit profession was the issuance of the report of the National Commission on Fraudulent Financial presentation in 1987. This report contains the findings and recommendations of the commission to prevent fraudulent financial reporting by companies in held by the public.

Among its recommendations it was suggested that companies held by the public establish an internal audit made appropriately qualified personnel, and fully supported by senior management.

The Evolution of the Internal Audit approach has the following phases:

· Auditing based on the re-implementation or full testing of transactions:

This approach comes in the first stage of internal audit and consisted of detailed verification of the accounting records, the protection of assets, detection and prevention of fraud.

· Auditing based on internal controls:

This was limited to the assessment of internal controls of the organization in order to ensure that they comply with the protection of the assets of the organization.

· Auditing based on business risk:

This is the modern approach to internal audit, which is aimed at assessing the key controls that reduce business risks, in order to add value to the organization and help fulfill the objectives.

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