The CPA's Transition to the World of Internal Auditing

By O'Regan, David | The CPA Journal, August 2002 | Go to article overview

The CPA's Transition to the World of Internal Auditing


O'Regan, David, The CPA Journal


Despite its importance, little guidance pertains to the challenges facing CPAs that have moved into internal auditing as full-fledged internal auditors rather than as consultants or advisors. Large numbers of CPAs become internal auditors, either en route to the corporate sector or as a long-term career.

A public accountant's transition to a corporate audit environment can be tricky. Internal auditing is no longer just a soft landing for the public accountant moving into industry; it has a challenging agenda all its own. The CPA-turned-internal auditor will notice several major differences in the professional environment. Compared to the well-defined ambience of public accounting, internal auditing can often seem insubstantial. The sophisticated internal resources and networks of the large, multinational auditing firms are lacking, as are the dayto-day pressures of client fees. However, the sheer scope of activities that can fall within internal audit are substantial: corporate risk assessment, fraud investigations, operational efficiency analysis, reviewing compliance with the Foreign Corrupt Practices Act, and assisting external auditors-not to mention the general ledger account reviews.

The public accountant who moves into such an environment may find a mastery of accountancy insufficient to grapple with some of these areas. But internal auditing's body of knowledge has been maturing over time. The internal auditor must draw on resources of creativity and imagination to give coherence to a messy set of raw materials and impose order on the auditing agenda.

The challenges facing the internal auditor are magnified in the case of smaller corporate audit departments. Although such corporate auditing functions may have some advantages over their larger peers-less bureaucracy, a more fluid and flexible structure, flatter reporting lines, and close proximity to senior management-tight resources can make delivering a professional internal auditing service extremely difficult.

Moreover, the social downside of belonging to a small audit shop can be substantial. Auditors in smaller departments may find themselves working in isolation, deprived of the exchanges of ideas that occur in larger work groups, which provide an environment more easily conducive to mutual reassurance, inspiration, and learning.

Professional Standards

Public accountants that move into internal auditing find themselves swimming in waters of a different color. They may find themselves at a rather awkward junction of overlapping jurisdictions, caught between the standards of their professional association, their corporate loyalty and confidentiality, the dictates of in-house procedural manuals, the methodologies of external consultants, and even the literature of internal auditing. One frequent response to this bewildering proliferation of sources of authority is for the internal auditor to create an idiosyncratic framework to operate in, possibly deciding to defy the pronouncements of professional associations like the Institute of Internal Auditors (IIA). Although the CPA internal auditor owes no formal obligation to the IIA, neglecting pre-existing thinking on internal auditing that reflects the accumulated wisdom of several decades would be unwise.

The IIA's Professional Practices Framework (PPF) has a threefold structure.The first part deals with ethics and standards, which are mandatory guidance for IIA members. Second, practice advisories offer nonmandatory guidance and advice on the best auditing practices. Third, and perhaps of most relevance to the CPA internal auditor, are the development and practice aids that cover educational products and research literature.

Credibility of Organizations

The importance of establishing a solid basis for an internal auditing function within an organization cannot be overstated. For day-to-day matters, the internal auditor may report to a senior executive of sufficient authority and credibility, possibly the CEO. …

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