Foundation of Internal Auditing

About 3000 B.C, historians have determined that Mesopotamian civilizations utilized elaborate
systems of internal controls using thicks, dots, and check marks.

Auditing has evolved over the millennia

Today we generally think of two basic types of business auditors:

external :
Is chartered by regulatory authority to visit an enterprise or entity and to review and
independently report the result of the review
internal :
Is an employee or a member of an enterprise who independently reviews and asses
operations in wide variety areas, such as accounting office procedure or manufacturing
quality process
Standards to be followed: established by Institute Internal Auditors (IIA)
UNDERSTANDING
IIA define Internal Auditing as :
An independent appraisal function establish within an organization to examine and
evaluate its activities as a serve to organization
Also be recognized as an organizational control within an enterprise that functions by
measuring and evaluating the effectiveness of other controls
One of the control that an enterprise have is Internal audit. Besides that, company have
other function-level control to assure the achievement of its established objectives/goals.
The special role of internal audit is to help measure and evaluate those other controls.
Internal auditors can help the responsible individuals achieve more effective results by
appraising existing controls and providing a basis for helping to improve those controls.

HISTORY & BACKGROUND

PAST
financially oriented checker of records and more of a "police officer" than a coworker.

At that time, external financial auditors were focusing on expressing an opinion on the
fairness of an enterprise's financial statement rather than on detecting internal control
weakness or even clerical errors.

Internal auditors were primarily concerned with checking accounting records and
detecting financial errors and irregularities and often were little more than shadows or
assistants to their independent external auditors.

internal auditor were either clerks assigned to the routine task of a perpetual search for
clerical errors in accounting documents, or they were traveling representatives of
corporations having branches in widely scattered locations.

MODERN
financial and non-financial area.

The increasing complexity of modern business and other enterprise has created the need

for internal auditors to become specialists in various business controls.

The increase importance/needs of internal audit
New business initiatives : COSO internal control framework & SOx
Protection from industrial hazards
Support of quality-control programs
Ethical standards
Size of an enterprise
Higher standards of corporate governance
Greater involvement of BOD and their audit commitee
More active role for stockholders
Greater independence of outside public accountants.