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Internal Auditor Staff: Importance of Function and Costs

In a latest seminar on internal audit wherein a group of corporate representatives of corporations (privately and publicly held corporations), several issues were raised by the attendees, a number of which are listed below:

1. Establishing an internal audit function/department is not a legal requirement. Consequently, it is an optional function.

2. In an era of economic difficulties, we need to cut back on overhead such as internal audit functions. Internal audit department does not bring any revenue to the corporation. It is a mere cost center. A company should not establish the function unless it will increase the earnings of the company.

3. If we (corporations) have a legal requirement to have an internal audit function, then staffing it with one person will suffice the requirement.

4. Internal audit function is to compare policy to actual transactions; consequently the internal auditor does not have to be collage graduate.

5. To minimize our cost, we may perform one audit a year, and outsource it to a job shopper.

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1. An effective internal control department helps an organization in several ways. It improves the risk management ability, improves internal processes, and enhances overall corporate governance. However there is no specific procedure to organize an internal audit department. There could be various differences in nature of businesses, geographic span, and organization structure which require different audit needs. Every organization must however, follow the International Standards for the Professional Practice of Internal Auditing. The need to have internal control department comes from legal requirements such as Sarbanes-Oxley (Sox) Act, or other requirements from governmental agencies. When an internal control department is not there is any organization, the senior management should take steps to establish such a function. The United States has established an independent, non-governmental supervisory body that monitors the auditing of publicly listed companies. The resultant body, called Sarbanes-Oxley Act protects investor's interest and increases confidence in auditor's reports on company accounts. The Act necessitates formation of internal control function to monitor auditor's work. The internal control department needs a strong leader, or the Chief Audit Executive who understands the organization and its potential control risks as well as clearly knows the difference internal control can make to the organization.

Hence, for public listed companies establishing an internal control department is not optional; rather it is a binding legal requirement. For companies which do not fall under the Act due to their size, revenue or other factors are not legally bided by the law to establish such a function, however it is recommended for the benefit of the organization.

1. Governance recommendations. (n.d). Danske Bank, Retrieved from
2. Moeller, Robert ...

Solution Summary

This solution assess the validity of the given statements regarding auditing and provides a detailed discussion on the topic of internal auditing in response to the statements.