TOPIC:

INTERNAL

The directors who lead and control the company. The directors role is to oversee the management of the business and affairs of the corporation rather than be directly involved in the day-to-day management of the corporation. The starting point for directors, in fulfilling their oversight role, is to satisfy themselves that the individuals who make up senior management are qualified and worthy of the trust and confidence of the directors.

Leadership
Stewardship

Efficiency, probity, responsibility, transparency, disclosure, accountability

Oversight, supervisory and monitoring responsibilities, risk management, implementation of effective communication policies and internal controls Internal control framework, audit committee, external and internal audit

Control

The

directors composition should include a balance of executive and non-executive directors, including independent nonexecutive directors.

 Institute

Of Internal Auditors (IIA) offers the following definition of IA:

IA is an independent, objective assurance and consulting activity designed to add value and improve an organizations operation. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

 Viewed

as a first line defense against inadequate corporate governance and financial reporting. internal audit staff is in the best position to gather intelligence on appropriate accounting practices, inadequate internal controls, and ineffective corporate governance.

The

 Referred External

to as independent auditors.

because they are not employed by entity being audited. of public accounting profession.

Members

 Audit

financial statements for public listed and private companies, governmental entities and units, registered business and partnerships, club and societies, and other types of entities. conduct compliance, operational, and forensic audit for such entities or other individuals.

Also

An audit committee composition of at least three directors, a majority of whom are not inside directors (that is, directors who are also officers or employees of the corporation or any of the corporations affiliates). In most corporations, the audit committee is the most important board committee and, ideally, should supervise all financial matters.

 The

responsibilities of audit committee members should not be underestimated. When a corporation suddenly performs poorly or fails, attention is usually focused on the adequacy of corporate governance, the credibility of the financial statements and the audit committees performance.

The audit committee of a public corporation must have a written charter that sets out its mandate and responsibilities. The rule requires the audit committee to do the following, at a minimum:
Recommend to the board the external auditor to be nominated for appointment by the shareholders. Recommend the compensation of the external auditor. Be directly responsible for overseeing the work of the external auditor, including resolving disagreements between management and the auditor about financial reporting. Preapproved all non-audit services to be provided by the external auditor. Review the financial statements, managements discussion and analysis (MD&A) and earnings news releases before the information is publicly disclosed.

 Appointment

s of new directors to the board should have formal and transparent procedures. should be required to submit themselves for re-election at regular intervals at least 3 years.

Directors

 Major

audit failures, including Enron and WorldCom in Us alleged audit failures have been linked to the closeness of auditor-client relationship.
the quality of audit performed and the auditors independence in discharging its responsibilities effectively.

Affect

Past studies have shown that interlocking directors have the tendency to select the same auditor across the companies on which boards they sit. Tenure of an audit engagement in the presence of these links is commonly longer than the tenure within auditor-client relationship which not so linked. It has been argued to have an effect on audit quality.

 759

listed companies on the Main Board and Second Board of The Bursa Malaysia in the year 2007. show that director-auditor link has a significant positive effect on the issuance of unqualified audit opinion, thus confirm the prediction that the interlink auditors are more lenient towards interlink companies as a result of the attachments developed by director-auditor link.
create mutual dependence and mutual trusts between the parties involved.

Results

Attachment

 While

auditors are expected to independently express their opinions. suggests that the audit opinion issued is influenced by director-auditor link, hence raises questions on the auditors level of independence.
Thus suggests the need of active shareholders involvement in the auditor selection process.

Evidence

 The

internal audit group could be a major asset for improving public confidence in financial reporting and corporate governance. Therefore, Are the internal audit groups prepare to grasps this opportunity?

 Survey To

on Board members view

determine what are current practices, desired practices and the gaps related to internal audit independence, scope, and Sarbanes-Oxley compliance monitoring.

 Who

has and should have responsibility for the governance of internal auditing?
Chief Financial Officer? Chief Operational Officer? Board Audit Committee Related to these activities:
Administrative and functional reporting Approving the audit charter Hiring and firing of the Chief Audit Executive Setting CAE compensation

 The

CFO as well as other heads of business units continue to need to know what is right and wrong with their finances and operations within their scope of company responsibility.

The

increasing frequency of financial reporting and external auditing failures, however, motivated the Internal Auditing profession to seek greater independence for its actions and judgments.

 Functional

reporting preference will shift from current senior officers to the Board Audit Committee. Reporting preference will extend to the Board Audit Committee and retain the present report links with senior management. This preposition represents internal audits desire to keep the Board Audit Committee more fully informed of its activities and findings.

Administrative

 With

the current financial reporting improvement climate, it is anticipated that internal auditors will seek audit charter approval from Board Audit Committee.

 The

desired preference for internal audit charter approval by the Board Audit Committee will be greater than the present practices.

 Independence

of the internal audit function is at risk if an auditee, e.g., CFO has responsilibilty for hiring (CAE indebted to CFO) and firing (CAE hesitant to criticize CFO). Therefore, the question is whether the Board Audit Committee should have the authority, not concurrence in these decisions.

 The

desired preference for the hiring and the removing of the CAE reside with the Board Audit Committee

 The

Relationship between Director-Auditor Link and Audit Opinion, http://macrothink.org Audit Independence and Corporate Governance, http://www.theiia.org/iia

Internal