The Internal Audit Function: A Prerequisite for Good Governance

Published date01 January 2017
AuthorJanet B. Butler,Cecily Raiborn,Mina Pizzini,Kasey Martin,
Date01 January 2017
DOIhttp://doi.org/10.1002/jcaf.22246
f
e
a
t
u
r
e
a
r
t
i
c
l
e
10
© 2017 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22246
The Internal Audit Function:
A Prerequisite for Good Governance
Cecily Raiborn, Janet B. Butler, Kasey Martin, and Mina Pizzini
INTRODUCTION
In 2013, the
NASDAQ Stock
Market LLC (NAS-
DAQ) filed a pro-
posal with the Securi-
ties and Exchange
Commission (SEC)
to require NASDAQ–
listed companies to
establish and main-
tain an internal audit
(IA) function (SEC,
2013a). According to
the proposal, the pur-
pose of the IA func-
tion is “to provide
management and the
audit committee with
ongoing assessments
of the Company’s
risk management processes
and system of internal control”
(SEC, 2013a, p. 1). The NAS-
DAQ proposal, which has since
been withdrawn, was similar to
a New York Stock Exchange
(NYSE, n.d.) requirement for
listed companies.
Upon the proposal’s
release, some NASDAQ com-
panies protested, claiming
that the requirement would be
unduly burdensome. Pros and
cons enumerated in the letters
are summarized in Exhibit 1
(SEC, 2013b). The top three
reasons against the proposal
were cost of implementation,
time commitments required of
organizational employees, and
redundancy of IA to a firm’s
external audit process. The
NASDAQ voluntarily withdrew
the proposal in May
2013 (Mont, 2013).
Many of the
stocks listed on
stock exchanges
other than the
NYSE are from
relatively young,
high-growth technol-
ogy and Internet-
based companies.
Such companies
have much to gain
from an IA func-
tion, even if it is
not stock exchange
required, because
they are more sus-
ceptible to internal
control weaknesses
and fraud than are
larger, more established, and
financially stronger companies
(Ashbaugh-Skaife, Collins, &
Kinney, 2007; Association of
Certified Fraud Examiners
[ACFE], 2016; Doyle, Ge, &
McVay, 2007). The nature and
content of the negative com-
ments related to the NASDAQ
proposal arguably demonstrate
some managers’ lack of experi-
ence with the differing goals
AQ1
In 2013, the NASDAQ Stock Market LLC (NASDAQ)
establish and maintain an internal audit (IA)
function. Comment letters received on the pro-
posal were overwhelmingly negative. The top
three reasons against the proposal were cost of
implementation, time commitments required of
organizational employees, and redundancy of IA to
a firm’s external audit process. This article delin-
eates differences between internal and external
audit responsibilities, identifies the benefits of
internal auditing, highlights the role that internal
auditors play in corporate governance and risk
management, demonstrates how IA assurance
and consulting activities add organizational value,
and discusses cost-effective options for imple-
menting an IA function.
© 2017 Wiley Periodicals, Inc.
Editorial Review

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT