Research Opportunities in Internal Auditing

Edited by Andrew D. Bailey Jr., Audrey A. Gramling, Sridhar Ramamoorti

Recent scandals in corporate America and the plunging stock markets have prompted the U.S. Congress to unleash its most sweeping regulatory and corporate reform legislation since the Securities Acts of 1933 and 1934.

In the past, crises of this nature did not focus on the role of internal auditing. Today, many are looking to the internal audit function and the chief audit executive as part of the solution to a perceived breakdown in the systems of business reporting, internal control, and ethical behavior. To understand the ramifications of, and the opportunities from, the new corporate governance environment, 11 well-known and respected academics have written on the past, present and future of internal auditing. These academics also outlined key questions that collectively present an ambitious research agenda.

Click the links below to read or download each section in PDF format.

Cover
Editorial Preface
List of Participants
Research Team
Biographies of Editors and Chapter Authors

CHAPTER 1
Internal Auditing: History, Evolution, and Prospects

I. Background
II. Internal Auditing: An Historical Perspective
III. Contemporary Practice of Internal Auditing: Environmental Changes, New Roles
and Responsibilities, New Definition
IV. Prospects for the Internal Auditing Profession
V. Summary of Research Issues
VI. Appendix I: Chapter Research Questions

CHAPTER 2
Internal Audit and Organizational Governance

I. Introduction
II. What is Organizational Governance?
Organizational Governance Defined
Parties Involved in Organizational Governance
Monitoring of Risks and Controls
Goals and Accountability
III. Demands for Better Governance
Key Factors Driving Demand
Groups Calling for Improved Governance
IV. The Role of the Board and Audit Committee
Board of Directors
Audit Committee
Alternative Governance Structures: The Two-Tiered Governance Structure
V. The Role of the IAF in the Governance Structure
Cultural and Industry Factors Affecting Governance Structure and the IAF
VI. Research on the IAF and Governance
VII. Summary
VIII. Appendix I: Chapter Research Questions

CHAPTER 3
The Internal Audit Function: An Integral Part of Organizational Governance

I. Introduction
II. The Core of the Conceptual Framework
Understanding the Organization and its Objectives
Developments in Management and Organizational Philosophy and Practices
A Process-oriented View of Value Creation and Risk Management
III. Organizational Governance
Internal Stakeholders
External Stakeholders
IV. Role of the Internal Audit Function in Promoting Effective Governance
The Formulation of the Role of the Internal Audit Function in the Audit Charter
Positioning of the Internal Audit Function
Internal Audit Activities: Assurance and Consulting Services
Relationship with the Independent Public Accountant
Knowledge, Skills, and Competencies Needed for Fulfilling the Internal Audit Function's Role
Systematic Process of Internal Auditing
V. Summary
VI. Appendix I: Chapter Research Questions

CHAPTER 4
Assurance and Consulting Services

I. Introduction
II. Adding Value
III. The Assurance/Consulting Continuum
IV. Assurance Services
V. Consulting Services
VI. Issues in Providing Assurance Services
Level of Assurance
The Relation of Evidence to Type and Level of Assurance
Providing Assurance Outside the Organization
The Nature of Assurance in Fraud Investigation
VII. Issues in Providing Consulting Services
Blended Engagements
Balancing Assurance and Consulting
Crossing the Limits
The Risks and Rewards of Providing Consulting Services
VIII. Summary
IX. Appendix I: Chapter Research Questions

CHAPTER 5
Auditing Risk Assessment and Risk Management

I. Introduction
II. Accounting, Internal Auditors, and Risk
Types of Business Risk
A Business Risk Example: Guiness PLC
III. Enterprise Risk Management (ERM)
Environment
Event Identification
Risk Assessment
Risk Response
Control Activities
Information and Communication
Monitoring
IV. ERM Performance Monitoring by the Internal Audit Function
The Environment - Objectives, Strategy, and Risk
Risk Event Identification
Risk Assessment
Risk Response (Risk/Reward Trade-off)
Control Activities
Information and Communication
Monitoring Risk
V. Conclusion
VI. Appendix I: Chapter Research Questions

CHAPTER 6
Managing the Internal Audit Function

I. Introduction
II. Planning
Internal Audit Planning at the Organizational Level
Planning Individual Engagements
III. Organizing
The Structure of the IAF
Audit Teams
The IAF as a Management Training Ground
IV. Staffing
Hiring
Training
Analyzing Task Structure
Necessary Skills
Management of Knowledge Resources in the IAF
Sourcing and Other Flexible Staffing Arrangements
Performance Measurement
Compensation
Retention
V. Leading
Leadership
Communication
VI. Controlling
Measuring and Controlling the Performance of the IAF as a Whole
VII. Summary
VIII. Appendix I: Chapter Research Questions

CHAPTER 7
Independence and Objectivity: A Framework for Research Opportunities in Internal Auditing

I. Introduction
II. The Demand for Independence and Objectivity in Professions
III. Independence and Objectivity Defined
IV. Independence and Objectivity and the Internal Auditing Profession
V. Standards for Internal Auditors Related to Independence and Objectivity
VI. A Framework for Managing Threats to Objectivity
VII. Identifying and Managing Threats to Objectivity
Individual Threats
Combinations of Threats
Threats at the Unit Level
Mitigating Factors
Objectivity Management Tools
Unresolved Threats
VIII. Conclusions
IX. Appendix I: Chapter Research Questions

CHAPTER 8
Internal Auditing's Systematic, Disciplined Process

I. Introduction
II. Recent Changes in Internal and External Auditing
III. The Model
Engagement Type
Cosourcing
Organization Characteristics
IV. Framework of an Engagement
Planning the Engagement
Performing the Engagement
Communicating the Engagement Results
V. Summary
VI. Appendix I: Chapter Research Questions

CHAPTER 9
The Pervasive Impact of Information Technology on Internal Auditing

I. Introduction
II. Historical Perspective on Information Technology and the Internal Audit Function
1950s and 1960s
1970s and 1980s
1990s and Beyond
III. Corporate Governance
IT as a Driver
IT as an Enabler
IV. Assurance and Consulting Services
CAATTs
Assurance Services
Consulting Services
V. Risk Assessment and Risk Management
IT and Business Risks
IT and the ERM Framework
VI. Managing the Internal Audit Function
Strategic Positioning
Hiring
Training
Managing the Audit
Communicating
VII. Ethics, Privacy, and Security
Privacy
Security
DOS Attacks
Ethical Hacking
Computer Forensics
VIII. Internal Auditing's Systematic, Disciplined Process
Decision Aids
Knowledge Management
IX. Conclusion
X. Tables and Figures
XI. Appendix: Summary of Research Questions
References
Glossary of Selected Information Technology Terms

Disclosure

Copyright © 2003 by The Institute of Internal Auditors, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201. All rights reserved. Printed in the United States of America. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means - electronic, mechanical,photocopying, recording, or otherwise - without prior written permission of the publisher.

The IIA publishes this document for informational and educational purposes. This document is intendedto provide information, but is not a substitute for legal or accounting advice. The IIA does not provide suchadvice and makes no warranty as to any legal or accounting results through its publication of this document. When legal or accounting issues arise, professional assistance should be sought and retained.

The Professional Practices Framework for Internal Auditing (PPF) was designed by The IIA Board of Directors' Guidance Task Force to appropriately organize the full range of existing and developing practice guidance for the profession. Based on the definition of internal auditing, the PPF comprises 1) Ethics and Standards, Practice Advisories, and Development and Practice Aids, and paves the way to world-class internal auditing.

ISBN 0-89413-498-1
02404 01/03
First Printing