History of Auditing/Internal Auditing (1/20)

Question 1

Major trends that have changed auditing (4)

Answer 1

MEPC
Modern corporation (separation of ownership and control)
Equity markets
Pressure on corporate execs for earnings performance
Computerization of business (around the computer vs through the computer)

Question 2

Auditing prior to 1930

Answer 2

Used for detection fraud

Question 3

1930’s - GREAT DEPRESSION

Answer 3

Stock Market crash
Requires annual audit of public companies
FOCUS NO LONGER FRAUD
"Fairly present"
SEC Acts of 1933 and 1934
SEC - formed to protect the public
SEC = strict regulator of markets
SAS 65 = INDEPENDENCE and COMPETENCE

Question 4

1940’s - WWII

Answer 4

sizes of companies growing
SAMPLING
Internal auditors assist with low level operational needs
Extension of external auditors
Reconcile bank statements, check math

Question 5

1942 - IIA LAUNCH

Answer 5

1st chapter in NYC

HQ now in Altamonte Springs

Question 6

Objectives of IIA (5)

Answer 6

DSSEC
Development activities
Standards for practice of IA
Standards for CIA
Educate members
Code of Ethics

Question 7

1970’s - Foreign Corrupt Practices Act

Answer 7

Prohibit bribery of foreign government officials

“Internal control function” - all public companies must have this

Question 8

1980’s - COSO

Answer 8

CPA firms missed major fraud
Treadway Commission
Formation of COSO

Question 9

Treadway Commission

Answer 9

James Treadway
former SEC commissioner
external auditors weren’t catching fraud, needed model of IA
appoint committee to develop COSO model

Question 10

COSO

Answer 10

Committee of Sponsoring Organizations of the Treadway Comissh

Question 11

2000’ SOX

Answer 11

Sarbanes Oxley Act
Fall of Enron –> Worldcom –> Arthur Anderson
Section 302 - CEO and CFO must certify Fin Stmts
Section 404 - management must assess internal controls, external auditors must issue an opinion on internal control