External Audit, Internal Controls & Management Information Systems Essay

External Audit, Internal Controls & Management Information Systems - Essay Example Most public companies have an internal audit function. The internal auditor generally consists of employees from within the organization, although at times this some or all of this function may be outsourced (ABA, 2007). For companies where internal auditing exists, it is important for the auditing committee to meet with the senior internal auditing executives regularly to discuss problems and issues regarding the internal and external audit programs. Annual audit plans should also be reviewed regularly. Even if the internal audit program has been outsourced the auditing committee should hold regular meetings with theses representatives (American Bar Association, 2007). The fundamental contributor to the failure of an organization is a weak and ineffective internal audit system (Hamilton & Micklethwait, 2006). An internal auditing committee is crucial for assuring that the internal controls are working adequately and to ensure that the company's financial statements provide a true and fair view of the company and its affairs (Hamilton & Micklethwait, 2006). The audit committee is an integral part of corporate governance because it has the oversight responsibility for a public company's financial reporting processes and external controls. ... the external auditor and the board, review the annual and quarterly financial statements with the external auditor and to review annual reports to shareholders, among many others (American Bar Association, 2007). The audit committee should meet with the corporate external auditor during the planning phase of each annual audit for the purpose of planning, staffing, scope and cost of the audit. Other areas that require special attention or emphasis should also be discussed along with special procedures that may be required during the auditing process. Once the audit is completed, the audit committee along with the external auditor is required to review any problems or difficulties that they external auditors may have encountered. Any significant issues which were highlighted in the audit, debates which took place with management regarding the audit, letters summarizing the audit and observation to management and the management response letter should all also be reviewed and discussed by the audit committee with the external auditor (American Bar Association, 2007). The audit committee should be clear about all significant accounting judgments made in the audit which would impact the company's financial statements. The committee should also discuss the quality of management's accounting decisions with the external auditor. The committee should also discuss deficiencies and weaknesses pointed out in the audit, with the internal auditors (American Bar Association, 2007). The purpose of external audits is to evaluate an organization's accounting procedures and to provide an opinion about the true and fair state of the firm's financial standing. These also verify the organization's compliance to the set rules and standards such as the General Accepted Accounting