32 • 1

CHAPTER

32

INTERNAL AUDITING

Seymour Jones*

New York University

CONTENTS

32.1 Introduction 1
32.2 Role of Internal Auditing in both
National and International
Environments 2
32.3 History 5
32.4 How Corporate America and
External Auditors Actually
View the Internal Audit
Function 9
32.5 Regulation and the Lack Thereof
in the Internal Audit Profession 10
32.6 Board of Directors/Audit
Committees and the Internal
Auditors 10

32.7 Qualifications for an Internal

Auditor 11

32.8 Evaluating the Internal Audit

Function 12

32.9 Views of Internal Auditing Must

Change 12

32.10 COSO’s Views of the Control

Environment and the Impact on

Internal Auditing 13

32.11 Future of Internal Auditing 14

32.12 Summary 14

SOURCES AND SUGGESTED

REFERENCES 15

32.1 INTRODUCTION. This chapter explains internal auditing, how it has evolved
over the past 50 years, and how it must continue to evolve in the future to accom-
modate not only the changing business environment but the public impact on the au-
diting profession’s independence when external auditors perform such services for
audit clients. This chapter also emphasizes the internal audit function in international
companies.
Factors such as business developments, and a history of financial disasters influ-
ence the public’s internal audit expectations and hence development. While there is
no worldwide generally accepted method of internal auditing, there is a growing
body of knowledge about what internal auditing should encompass. The Institute of
Internal Auditors (IIA) has made great progress in helping to develop a comprehen-
sive body of knowledge about internal auditing.
Other factors, such as the location of a company’s corporate headquarters influ-
ence management’s view of the internal audit function. Branches and subsidiaries of
foreign companies, even when located in another country, will follow corporate di-

*The author acknowledges the prior work on this chapter by Penelope A. Flugger and the assistance
of the Internal Audit Services Group of PricewaterhouseCoopers.