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In Perspective

Internal Auditing

by Scott Fargason, JD, CPA, CIA, CFE; Alicia Rieffel, MS, CPA; and Glenn E. Sumners, DBA, CPA, CFE


Introduction
Are you looking for a challenging entry-level position that provides a good overview of an organization and serves as a stepping-stone to management positions? Internal auditing provides these opportunities and more.
Internal auditing is the entry-level position of choice for many undergraduate and graduate students from both business and non-business disciplines. The current job market is outstanding and the future looks very promising for the profession. The demand for internal auditors to serve as internal consultants is unparalleled. The profession offers challenging assignments and excellent career opportunities with competitive compensation.
Internal auditing is an independent appraisal function established within an organization to examine and evaluate the adequacy and effectiveness of the organization's internal control system and its overall quality of performance. Internal auditors furnish top management with analyses, appraisals, recommendations, counsel, and information concerning the activities of the organization

The Internal Auditing Profession
The practice of internal auditing has been in existence for more than one hundred years. However, internal auditing is a relatively new and emerging profession. The Institute of Internal Auditors (IIA) was founded in 1941 and is the recognized body that governs the practice of internal auditing. The IIA headquarters is located in Altamonte Springs, Florida, and the profession currently has a membership of over 66,000 internal auditors from over 125 countries. The IIA works in conjunction with many local chapters throughout the world in order to promote the profession.

Types Of Audits

Internal auditors not only test the accuracy of financial reporting, they also review the operations of organizations in order to determine the efficiency and effectiveness of the organization under review and to determine whether the organization is in compliance with established laws and organization policies. Internal auditors help executive management assess controls within the organization with the overall goal of increasing profitability. Audits are generally classified as financial, compliance, or operational as follows:

Financial Audits
Financial auditing is the analysis of the economic activity of an organization as measured and reported by its financial statements. Financial audits test the validity of the financial statements.

Compliance Audits

Reviewing both financial and operating controls determines how well the organization conforms with its established policies and procedures, rules and regulations, or laws. An example of a compliance audit would be the verification that the organization is in compliance with federal regulations such as those of the Environmental Protection Agency.

Operational Audits

Auditors perform comprehensive reviews of activities, systems, and controls to evaluate economic, efficient, and effective processes within an organization. A primary purpose of an operational audit is to measure management's performance in meeting organizational goals at minimal cost. In this regard, operational auditing is a consulting service to management. The internal auditor of the twenty-first century will place more emphasis on offering such consulting services to the organization. For many organizations, internal auditors already provide a vast array of consulting services, in an effort to enhance efficiency and effectiveness of the organization.

Internal Auditing---Career Path or Stepping Stone?
In many organizations, the internal auditing department provides excellent training for future management positions. Internal auditors' work includes a wide array of assignments at various locations and provides a good overview of the entire organization. Internal auditors form a "big picture" mentality that is needed in management positions. The benefits of conducting audits include the broad exposure to different business processes, while having the opportunity to review related internal controls and operational practices. In this regard, the internal auditing department is a "stepping stone" for many internal auditors who eventually move into executive management. Typically a new hire will work for three years as an internal auditor and then rotate into another department within the organization, bringing the knowledge, skills, and discipline of the internal auditing profession to the new position. On the other hand, some individuals prefer to make internal auditing a career. Many enjoy the variety of challenges and travel opportunities that the profession has to offer.

What Organizations Hire Internal Auditors?

Organizations of virtually all shapes and sizes employ internal auditors. Major corporations typically have large audit staffs (25-250). In addition, many small organizations hire internal auditors to help review and improve operations. Regardless of size, the internal audit department can provide valuable information to executive management by examining current practices of the company, noting deficiencies, and making corresponding recommendations for corrective action. The internal auditing profession spans the globe. You will find internal auditors in almost every country, conducting audits for private companies, public corporations, and not-for-profit organizations. For many internal auditors, their job is 100% travel, affording the internal auditor an opportunity to "see the world." However, the typical auditor travels 30% of the time depending on whether the organization is multi-locational or international.

Skills And Attributes Of Internal Auditors
Internal auditing is a multidisciplinary profession requiring that auditors have a wide variety of skills. However, a few attributes are paramount.

Communication Skills

The majority of audit time is spent working with people. Accordingly, internal auditors must possess good oral and written communication skills to persuade management that change is needed to address risks, improve controls, and more efficiently and effectively achieve goals and objectives. Internal auditors spend most of their time communicating with their "customers" throughout the organization. The audit process typically includes interviews with management and operating personnel. The audit team prepares a report at the conclusion of each audit that provides constructive recommendations to assist its customers in their assigned management roles.

Unstructured Problem Solving
Internal auditors are assigned to a wide variety and types of audits throughout the organization. The increasing emphasis on consulting, value-added auditing, and operational auditing requires skills to solve unstructured problems. Business is changing at an unparalleled rate due to technology, competition, and globalization. This turbulent environment creates a need for auditors that can identify risks, evaluate controls, and serve as a catalyst to facilitate change.

Team Player
Most audit assignments are complex and require a variety of skills and knowledge. Accordingly, auditors work in teams that collectively possess the required skill sets. Internal auditors must have the demeanor, disposition, and interpersonal skills to function on an integrated audit team.

Systems Orientation
An increasingly emerging skill for internal auditors is information systems knowledge, including computer technology. Information systems is an integral part of most business processes and auditors must be able to understand, evaluate, and suggest changes to improve systems.

Certification

What Is A Certified Internal Auditor (CIA)?
CIAs are a select group of professionals who have distinguished themselves in one of the world's most rewarding career fields---internal auditing. The CIA designation demonstrates competence in the principles and practice of internal auditing and is the designation accepted internationally for internal auditors.

Why Should You Become a CIA?
Preparing for the exam will sharpen your skills as an internal auditor. As a CIA you will receive personal satisfaction in achieving a challenging goal and you will be recognized as an expert in the field of internal auditing, considered for more career opportunities or promotions, and included as a distinguished member of a select group of internal auditing professionals.

The Examination
Certification is definitely an attainable goal for an internal auditor with a serious commitment and good study habits. The test lasts two days and consists of four parts, each three and one-half hours long. It evaluates the candidate in all areas of study necessary to perform the role of an internal auditor. A brief overview of the exam is presented since the exam reflects the knowledge base of internal auditors.

Part I---Internal Audit Process

Part I focuses on the theory and practice of internal auditing. Major areas covered include auditing, professionalism, and fraud (detection, reporting, and investigating.)

Part II---Internal Audit Skills

Part II includes the application of problem solving, decision-making techniques, and reasoning skills in an audit context. This part includes specific skill emphasis on problem-solving and reasoning ability, communication skills, and dealing with auditees. Problem-solving skills are tested at various levels of competency. Behavioral skills, statistics, and mathematical skills are tested at the understanding and awareness levels.

Part III---Management Control and Information Technology

Part III deals with basic business disciplines essential to the practice of internal auditing. The major topic areas covered are organization and management, information technology, managerial accounting, and quantitative methods as a management tool.

Part IV---The Audit Environment

Part IV covers areas such as financial accounting, finance, economics, international developments relevant to the practice of internal auditing, government, taxes, and marketing.

How Can You Prepare For An Internal Audit Career?
Internal auditors have a variety of educational backgrounds. However, a business degree is perhaps the most common. A business degree combined with communication and systems courses is one path that could prepare you for an internal audit position.

For Additional Information:
Students interested in a career in internal auditing should contact one of the IIA's Endorsed Internal Audit programs at the following schools:

University of Alabama at Birmingham; Arizona State University; West Bentley College; Boise State University; Brigham Young University; California State University, Dominguez Hills; Clemson University; Cleveland State University; Eastern Michigan University; Florida Atlantic University; Florida International University; Howard University; University of Houston; King Fahd University of Petroleum and Minerals; Louisiana State University; University of New Orleans; New York University; University of North Carolina at Charlotte; University of North Texas Norwegian School of Management; Old Dominion University; San Francisco State University; Seton Hall University; Southwest Missouri State University; State University of New York (SUNY) at Buffalo; University of Tennessee at Knoxville; Tennessee Technological University; Texas A & M University; University of Texas at Arlington; University of Texas at Austin; and University of Aiz-Marseille III Grad. School of Bus.

The IIA Manager of Academic Relations (at the address below) can also provide assistance.

Manager of Academic Relations at The Institute of Internal Auditors
249 Maitland Avenue, Altamonte Springs, FL 32701

Most major cities have an IIA Chapter.
The motto of the profession is "Progress through sharing" and members are receptive to your questions and will gladly discuss their profession with you.

For additional information about The Institute of Internal Auditors, contact the Customer Service Center at e-mail custserv@theiia.org, or fax (407)831-5171, or telephone (407)830-7600 ext. 1.

Additional information is available at the following web sites.
The Institute of Internal Auditors---http://theiia.org
LSU Center for Internal Auditors--0-http://www.bus.lsu.edu/accounting/

Conclusion
The internal audit profession provides an excellent opportunity for students who excel in their academic studies and have good interpersonal skills. Internal auditing can provide you with the training and opportunity to kick-start your career. Internal auditors spend most of their time working with management to improve the efficiency, effectiveness, and economy of operations. The ability to pro-actively work with people to facilitate change is an essential attribute.

Louisiana State University
Center for Internal Auditing
Dr. Glenn Sumners is the Director of the Center for Internal Audit at Louisiana State University.
Scott Fargason and Alicia Rieffel are instructors at Louisiana State University.

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