havior and what is not. This is a classic case of “tone at the top,” to be monitored and
reported on by the internal audit staff directly to the board of directors and/or its audit
committee. Unfortunately, a recent international case involving the mismanagement
of derivatives by an Asian trader was reported to the board of directors in London but
the board failed to act. The internal auditors had nevertheless done their job.
The fraud challenge presents internal auditors with opportunities. Proper response
to the challenge sells control recommendations. In the long run, proper response by
the internal auditors and the organization not only builds professional credibility but
also helps organizations to sidestep dangers and significant losses. The auditor who
chooses to be part of the fraud solution can look forward to continuing professional
challenge and a firm place in the management structure of an organization.
32.5 REGULATION AND THE LACK THEREOF IN THE INTERNAL AUDIT PROFESSION.
The requirements for entering the internal audit profession might still be unclear. It
takes a special person to be successful in this profession and to really enjoy it. Al-
though it takes a unique person to do an outstanding job in this area, not all compa-
nies appreciate that. The truly visionary company does. However, there are still a
number of companies who keep their internal audit function only because it is a nec-
essary cost of doing business in the eyes of the regulators.
While the IIA has done a wonderful job of advancing the profession, there are still
a number of individuals and companies who do not subscribe to the standards the IIA
has published. There is no requirement, such as is true of the public accounting pro-
fession, that one must be certified or be subject to peer review to function in an in-
ternal audit capacity. However, the IIA has undertaken research to suggest a body of
knowledge that is necessary to be successful.
As of March 1, 1999, the IIA’s Competency Framework for Internal Auditing
(CFIA) became available. A significant finding of the study is the need for a univer-
sal definition of the profession. Associations worldwide report that a great deal of un-
certainty exists about the total number of practicing internal auditors. This is partly
attributed to variations in definitions of internal auditing around the globe. This lack
of definition also hampers management’s understanding of, and respect for, the pro-
fession and its practitioners. In recognition of the need for a formal definition, after
the formal exposure process, the board of directors of the IIA adopted the following
definition of internal auditing:
Internal auditing is an independent, objective assurance and consulting activity de-
signed to add value and improve an organization’s operations. It helps an organization
accomplish its objectives by bringing a systematic, disciplined approach to evaluate and
improve the effectiveness of risk management, control, and governance processes.Should there be competency standards? The author believes we should have
guidelines and an authoritative source to help identify what is needed in the function.
Professional certification might indeed be an answer. The arguments here are no dif-
ferent from the overall argument about the ability of our current testing methodolo-
gies to identify the best in class.
32.6 BOARD OF DIRECTORS/AUDIT COMMITTEES AND THE INTERNAL AUDITORS.
As directors have become aware of their increased liability to protect shareholders,
they have often looked for sources to provide them with independent assurance that
32 • 10 INTERNAL AUDITING