NCJ Number
67957
Journal
Internal Auditor Volume: 35 Issue: 1 Dated: (FEBRUARY 1978) Pages: 60-65
Date Published
1978
Length
6 pages
Annotation
AFTER DISCUSSING CONGRESSIONAL CRITICISM OF THE AUDITING PROFESSION, THE ARTICLE SUGGESTS THAT INTERNAL AUDITORS REPORT DIRECTLY TO THE CHAIRMAN OF AN AUDITING COMMITTEE COMPOSED OF INDEPENDENT DIRECTORS OF THE BOARD.
Abstract
IN RESPONSE TO DISCLOSURES OF CORPORATE BRIBES AND POLITICAL PAYOFFS, THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS HAS ISSUED GUIDELINES CONCERNING ILLEGAL ACTS OF AUDITOR'S CLIENTS, AND CONGRESSIONAL COMMITTEES HAVE RECOMMENDED INCREASED FEDERAL REGULATION OF THE ACCOUNTING PROFESSION. UNWARRANTED PRESSURES HAVE BEEN PLACED ON PUBLIC ACCOUNTANTS, ALTHOUGH AUDITORS TRADITIONALLY ONLY FOCUS ON TRANSACTIONS LARGE ENOUGH TO AFFECT THE FAIR PRESENTATION OF FINANCIAL STATEMENTS AND ARE NOT RESPONSIBLE FOR A COMPANY'S FINANCIAL REPORTS. GOVERNMENT REGULATION IS UNDESIRABLE, BUT TOP MANAGEMENT HAS BEEN UNWILLING TO COOPERATE IN DETECTING ILLEGAL ACTS. THUS, THE PRIME RESPONSIBILITY FOR CORPORATE ACCOUNTABILITY LIES WITH THE BOARD OF DIRECTORS. THE BOARD NEEDS TO ESTABLISH AUDIT COMMITTEES TO MONITOR MANAGEMENT IF GOVERNMENT REGULATION IS TO BE AVOIDED. THE NEW YORK STOCK EXCHANGE (NYSE) REQUIRES THAT EVERY NYSE-LISTED COMPANY FORM AN AUDIT COMMITTEE PRIMARILY COMPOSED OF OUTSIDE DIRECTORS. PUBLIC DIRECTORS USUALLY SEE ONLY FINANCIAL DATA PREPARED BY MANAGEMENT AND HAVE NO STAFF TO CONDUCT INDEPENDENT RESEARCH. THE MAJOR INNOVATION NEEDED IS TO HAVE INTERNAL AUDITORS REPORT DIRECTLY AND PERMANENTLY TO THE CHAIRMAN OF THE AUDIT COMMITTEE. THESE PROFESSIONALS ARE FAMILIAR WITH THE ORGANIZATION AND DAILY OPERATIONS OF THE COMPANY, BUT REMAIN INDEPENDENT BECAUSE THEY REPORT ONLY TO AN OUTSIDE DIRECTOR WHO TRULY REPRESENTS THE STOCKHOLDERS AND THE PUBLIC. ALL LARGE COMPANIES DO NOT HAVE AUDITING COMMITTEES AND MANY ARE DOMINATED BY CHIEF EXECUTIVE OFFICERS, BUT ENLIGHTENED MANAGERS WILL MOVE IN THIS DIRECTION EITHER VOLUNTARILY OR UNDER PRESSURE. (MJM)