History of Internal Auditing

Question 1

Why was the IA profession created?

Answer 1

For the internal verification of financials systems as organizations were growing rapidly and management needed eyes and ears to ensure that processes were functioning accordingly. This became an extension of external audit and therefore reduced fees for external auditors.

Question 2

When was the IIA established and what was the purpose of its establishment.

Answer 2

Practicing Internal Auditors (RB Milne and JB Thurston) organised themselves and established an
institute in 1941 to represent their profession and to produce guidelines for other practising
internal auditors. Internal auditors found that they practiced the same techniques, although
they were from very different industries.

Question 3

What is the technical publication released by the IIA

Answer 3

In 1943 the first technical publication the ‘Internal Auditor’ was issued.

Question 4

What was the emphasis or focus of the Statement of Responsibilities of Internal Auditors?

Answer 4

the emphasis of the
internal auditing was still very much on accounting and financial matters, it included focus on
other operational matters.

Question 5

What were the elements that the IIA needed to be recognized as a professional body?

Answer 5

• Membership of a governing body
• Code of Ethics
• Certified Internal Auditor Exam (CIA)
• Standards governing the members of the profession
• Professional experience requirements
• Common Body of Knowledge (CBOK)
• Educational process (minimum prescribed course)

Question 6

Which regulatory and legislative mandates did the IIA respond to?

Answer 6

• Foreign Corrupt Practices Act - with particular emphasis on internal controls;
• the Report of the National Commission on Fraudulent Financial Reporting (Treadway
Commission Report);
• the Report of the Committee of Sponsoring Organisations of the Treadway Commission
(COSO);
• Internal control frameworks presented by the Cadbury Committee Report (Cadbury Report,
UK);
• the Criteria of Control Committee (CoCo Report, Canada);
• the King Committee (King Report, South Africa);
• the amendments to the U.S. Federal Sentencing Guidelines (1995);
• changes in the New York Stock Exchange rules regarding the structure and composition of the
Board of Directors of listed companies as well as the requirement for all publicly listed
companies to have an internal audit function;
• the Sarbanes-Oxley Act of 2002;
• Basel Committee on Banking Supervision (Basil)
• and the ongoing demand for better organisational governance.

Question 7

When was the Definition of Internal Auditing approved, and what is the defintion?

Answer 7

June 1999

Internal Auditing is an independent objective assurance and consulting activity designed to add value and improve organizations operations. It helps the organization by brining a systematic and disciplined approach into evaluating the adequacy and effectiveness of governance, risk management and controls processes.