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DISCUSSIONS > IIA GENERAL DISCUSSION AREA [ REFRESH ]
Thread Title: Independence in IA
Created On Friday September 07, 2012 9:09 PM
  Independence in IA
  Independence in IA
  Independence in IA


Terrye


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Friday September 07, 2012 9:09 PM

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Would Independence be impaired if an individual compiles the financial statements (from information given from the Operations Manager) and perform Internal Audit functions? The financial statement and Internal Audit are presented to the Directors or the Company.

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L. Thurston

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WAGirl


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Monday September 10, 2012 11:06 AM

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I don't believe that independence is impaired for compilation. However, you should still use best judgment when performing an audit pertaining to the compilation performed by you. For example, if you as an internal auditor are testing the data used in the compilation, independence would not be compared as you did not create the data. However, if you are testing the compilation control to make sure that it there are no errors, then obviously there would be some bias as you are performing the control that you are testing. Hope that makes sense.

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Paul_M


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Monday September 10, 2012 3:45 PM

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I would look to several sources in considering whether or not independence is impaired:
- IA Professional Standards, specifically Standard 1120 - Individual Objectivity: Internal auditors must have an impartial, unbiased attitude and avoid any conflict of interest.
- IIA Code of Ethics, Rules of Conduct 2.1 Internal auditors shall not participate in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organization.
- Practice Advisory 1130.A2-1: Internal Audit’s Responsibility for Other (Non-audit) Functions: Internal auditors are not to accept responsibility for non-audit functions or duties that are subject to periodic internal audit assessments. If they have this responsibility, then they are not functioning as internal auditors.

Although AICPA Professional Standards are not directly applicable, I would consider those independence rules as well by way of comparison (specifically Ethics Rule 101-3). There is considerable detail of these available, but the essence is that the auditor can perform nonattest services services, such as a compilation and similar bookkeeping services, without impairing independence, as long as the auditor does not assume management responsibilities. Whether an activity is depends on the circumstances and requires the exercise of judgment. Examples of management functions would generally include doing or having the authority to do the following:
- Make decisions on behalf of the client
- Authorize, execute or consummate client transactions
- Supervise, hire or terminate client employees,
- Oversee or manage any aspect of the client’s business
- Set policy for the client
- Have access to or custody of client assets
- Sign or co-sign client checks
- Establish or maintain internal controls for the client

A more basic question to me is why is an internal auditor compiling financial statements in the first place? Surely the company has accountants to perform this basic task?

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DISCUSSIONS > IIA GENERAL DISCUSSION AREA [ REFRESH ]
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