Large Organizations, the Existence Essay

Pages: 8 (2376 words)  ·  Bibliography Sources: 10  ·  File: .docx  ·  Level: College Senior  ·  Topic: Accounting

SAMPLE EXCERPT . . .
It has been the case in many entities that thigh the internal auditors are effective in their work but sometimes they fail to meet their responsibilities only due to the fact that the management of the organization attaches very low importance to such auditors. This hampers their performance on a very large scale (Jonson 2007).

Sometimes management is also reluctant to provide data to internal auditors because it does not trust the auditors completely. Business confidential documents such as minutes of the meeting of board of directors are not provided to the internal auditors on the fear that such data will be leaked to the general public. Therefore, winning the confidence of management is an important aspect in an effective internal audit function.

The work of the internal auditors is to check whether controls exist in every area of the organization and to also check that if such controls exist, they are working in an effective manner. Based on their detailed observations, the internal auditors issue recommendations to the management of the entity (Adams 1994). The challenge faced by internal auditors in issuing such recommendations comes from the fact that if the recommendation proves to portray a negative impact of any particular department or individual, than such department or individual can be a cause of difficulty for the internal audit function, for example denying access to the departments data, which leads to complete stoppage of the internal auditor's work.

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Audit and Global Financial Crisis

The recent global economic meltdown has increased the importance of both internal and external audit function by increasing their responsibilities. The financial crisis not only poses a question mark on the management of the organizations that failed but also on the accounting firms due to the fact that the duty of the internal audit function to recommended improvements in the areas having no or weak controls was not carried out at all or was carried out ineffectively.

Essay on Large Organizations, the Existence and Assignment

The role and co-ordination of internal and external auditors is of utmost important in this time of financial crisis as the organizations try to survive in a business environment that does not support their existence (Shah 2004). Such business environment poses higher risks of fraud in an entity. In making sure that these fraudulent activities do not take place in the current economic scenario, the assistance of external auditors by internal audit function is of utmost importance. The internal audit function is a part of management and can help the external auditor in identification of areas where a detailed scrutiny or test of details needs to be done to make sure that the risk of material misstatement is reduced to a level that is satisfactory (Brown 1983).

Due to the fact that internal audit works on every area of the organization in a very detailed manner, their work is of importance to the external audit because external auditors are limited by time so they have to perform limited procedures on every area of the audit (Lorsch n.d.). If external auditors succeed in using the work of internal auditors such as internal audit reports in an effective manner, than this will allow them to have a more effective business risk approach due to the fact that external auditor can put in more time to other areas where it thinks that the internal auditor's work is not sufficient to cover significant risks.

The co-ordination between internal and external auditors is likely to increase in the future due to the fact that the current economic scenario poses significant risks in different areas of the audit and as the external auditors are limited by time, they will need the assistance from the internal audit function in order to reduce significant business risks (Spira & Page 2003). Tough, the internal audit will need to put in greater economic effort but this would in return lead to an increase in their efficiency as any discrepancies in the work of internal auditors will be notified to them by the external auditor which will help in improving the overall audit quality.

Refrence List

International Accounting Standards 2010, IAASB-ISA 610 Exposure Draft, International Federation of Accountants, New York, viewed 27 February 2011, .

Shah, A 2004, Global Financial Crisis, Global Issues, viewed 27 February 2011, http://www.globalissues.org/article/768/global-financial-crisis.

International Accounting Standards 2010, IAASB Combined Exposure Draft IAPSs and IAPS 1000, International Federation of Accountants, New York, viewed 27 February 2011, < http://www.ifac.org/Guidance/EXD-Details.php?EDID=0143>.

Johnson, J 2007, PCAOB Ponders How to Audit Fair Value, CFO, viewed 27 February 2011, < http://www.cfo.com/article.cfm/9349986/c_9350413?f=home_todayinfinance>.

Bell, T & Marrs, F 1997, Auditing Organizations through a Strategic-Systems Lens. KPMG International, USA.

Lorsch, J n.d., Lessons from the Credit Crisis: Governing Financial Institutions. QFinance, viewed 27 February 2011, < http://www.qfinance.com/corporate-governance-viewpoints/lessons-from-the-credit-crisis-governing-financial-institutions-full>.

Spira, L & Page, M 2003 'Risk management: The reinvention of internal control and the changing role of internal audit', Accounting, Auditing & Accountability Journal, Vol. 16 no. 4, pp.640 -- 661.

Brown, P 1983 'Independent Auditor Judgment in the Evaluation of Internal Audit Functions', Journal of Accounting Research, Vol. 21, no. 2, pp. 444 -- 455.

Adams, M 1994 'Agency Theory and the Internal Audit', Managerial Auditing Journal, Vol. 9 no. 8, pp.8 -- 12.

Nagy, A 2002, 'An assessment… [END OF PREVIEW] . . . READ MORE

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