Summary
The face and scope of internal audit is changing. With time processes have always taken precedence over actual verification - except when a major fraud was discovered. The referred article speaks of the change now that the newness of Sarbannes Oxley is over and business is back to normal - atleast in terms of reduced major frauds. The article is however misleading because it relies to an excessive extent on statistics presented in a verbose form (which misleads) as compared to a tabular format (which is easier to read). In my analysis below I look at how and why internal audit is becoming increasingly relevant and all aspects are equally important.
Analysis
1. Internal audit started as a document verification exercise and evolved into a management function.
2. The referred article says that internal audit is expected today to be more of a management function rather than a verification exercise.
3. The reason for this is probably that no one likes the mundane job of verifying basic documents without which no audit is complete.
4. For over two decades now I have been reading that "The accountant is no more a bookkeeper but an aide to management".
5. My position is that if the auditor (internal or external) becomes part of management then no critical audit is possible. The auditor in all cases has to be independent.
6. While due emphasis to processes is to be given in an audit process but this should not be at the expense of time spent on document verification - especially by senior audit staff. It this happens then the audit would become unreliable.
7. The stimulus for an audit today has to start from the basic premise on the part of the auditor that the management cannot be expected to be honest - even in the most successful of companies. If one reads the new evolving audit standards whether in the US, or in the standards of the IFAC or in India or other major commercial jurisdictions then this point is very well brought out.
