It is fair to say that the auditor of the early twentieth century still served as an in-
house policeman of sorts. Internal auditors might discover fraud and defalcations
more quickly than external auditors could. The mere existence of the audit function
and the threat of the arrival of the internal auditors were, in many instances, viewed
as a strong deterrent to anyone who might think of misappropriation.
In the early 1940s, the changing U.S. regulatory environment began to change the
internal auditors’ responsibilities. They began to be viewed as an arm of manage-
ment, that is, someone who could identify actions needed to improve operating con-
trols that would also reduce waste and improve efficiency.
At the time, two events in the United States helped to elevate the status of the in-
ternal auditing profession. The first was a book on the internal audit profession by
Victor J. Brink. The second, while subtler in effect, was the establishment of the IIA.
The IIA’s mission is to be the primary professional association, organized on a
worldwide basis, dedicated to the promotion and development of the practice of in-
ternal auditing.
The IIA is committed to:
- Providing, on an international scale, comprehensive professional development
activities, standards for the practice of internal auditing, and certification - Researching, disseminating, and promoting to its members and to the public
throughout the world, knowledge and information concerning internal auditing,
including internal control and related subjects - Establishing meetings worldwide in order to educate members and others as to
the practice of internal auditing as it exists in various countries throughout the
world - Bring together internal auditing and promoting education in the field of internal
auditing
This recognition of the profession was supported by initiatives that were a corner-
stone of the overall World War II effort—efficiency and effectiveness. These were
two objectives that the internal audit profession were asked to foster in corporate
America. Because of our nation’s emphasis on productivity, auditors shifted the em-
phasis of their programs from what were considered financial audits to what is now
known as operational audits.As a result, management began to develop an under-
standing of what the internal audit function could accomplish as well as an appreci-
ation of how its activities could contribute to business success. The idea that the in-
ternal audit profession could contribute to business success did more for the
profession then many fully appreciate.
After the war years, the profession continued to develop and grow, partially as a
result of internal audits’ perceived benefits and partially as a result of the increasing
cost of the external audit function. Internal auditors were viewed as a vehicle for re-
ducing or controlling external audit costs. In addition, the regulatory emphasis on
corporate governance enhanced the prestige of the internal audit function. Internal
auditing received its greatest support in the bank regulatory area and in those indus-
tries subject to Department of Defense reviews (e.g., aerospace). The litigious U.S.
environment prompted audit committees and boards of directors to rely on internal
auditors to aid them in protecting themselves from charges of not being diligent with
respect to executing their duties.
In 1977 the U.S. Congress passed the Foreign Corrupt Practices Act (FCPA).
32.3 HISTORY 32 • 7