INTERNAL AUDITORS

The Role of Internal Auditors in the Corporate Governance Framework



The Role of Internal Auditors in the Corporate Governance Framework



Introduction

The term 'Internal audit' refers to all those activities that are meant to make an objective and independent assurance of the financial reporting of an organisation. Internal audit is the essence of regulating flaws in operations and reporting. It helps companies to add value in their operating and reporting activities through the use of effective and systematic controls, risk management and governance and control processes. (Kraakman et al 2004). Internal audit, unlike external audit or statutory audit, has very little attracted the interest of researchers in UK as research discipline or mechanism of corporate governance. The permanence of the debate leads us to wonder about the theoretical issues relating the role of internal audit as a tool in the service of corporate governance. The difficulty arises in gauging the contribution of internal audit in the process of preparing and processing financial reporting, and improving performance. This paper explores will highglight the importance of internal auditors in the corporate governance framework. In doing so, the paper will highlight the key issues and potential actions linking internal audit and business governance. In doing so, the paper will take extensive review of research evidence in the areas of corporate governance and internal audit.

Exposition of relevant (underpinning) theory to provde context for the role of internal auditors in the corporate governance framework

Corporate Governance corresponds to large number of principles with the help of governance context, that is performed by concerned departments which does not have an obligatory role. The implementation of corporate governance standards was materialized in the values of Cooperation and Economical Development Corporate Governance Organization (OECD). In EU, the corporate governance gained a lot of valuae after 1977, when many countries implemented adopted corporate governance codes (OECD 1999 12-62). The inclination of these codes' acceptance was financial scandals that had connection to bankruptcy of few British companies registered in the capital market. On the other hand, the Asian economic crisis along with investors' withdrawls from Asia and Russia posed immense problems for the entire international business world. The problems also had connection with the aftermath of penalties of the investors distrust in companies management (Claessens 2006 91-122). Therefore, Cadbury Code from 1992 was recognized for preventing some comparable financial scandals and to resume the investor's confidence in companies governance custom. UK is having a high range of corporate governance codes and the remaining codes are issued by the European Union member countries. Corporate governance comprises of the relationship between Board of Directors and interested parties. The major objective of corporate governance is the well-organized organization of material, human and financial resources, the fraud prevention and the decrease in risks regarding the events and the transactions which occurs in an entity.

Internal audit concept has recently emerged in the accounting profession and it elbows its way, systematically, according to the way in which modern management practices are implemented in the companies ...