May 20, 2011

Audits to Prove Financial Integrity

IS auditors may be engaged in a variety of audits. The only fundamental difference between internal and external audits is auditor independence. Although the focus and nature of the audit may vary from time to time, your audit function and responsibilities will remain constant.
Government interpretation of laws and regulations has determined that financial audits and internal controls are interrelated. Medium-to-large businesses undergo a quarterly audit for their financial statements. The goal is to ensure that the executives are held accountable for the accuracy of financial reports. IS auditors are called upon to determine whether the systems used for financial reporting are secure and trustworthy. This connects the integrity of the financial statement to the integrity of the IS environment. You could not ensure the integrity of one without verifying the other.
If financial integrity problems are discovered, a common legal strategy is to claim someone else committed any offenses creating misrepresentation. However, a well-managed IS environment prevents and detects unauthorized modifications. It takes a series of strong controls to help prove who to hold accountable.
As an example, consider the requirements specified under SOX for public corporations. There are two critical reporting functions that management must fulfill under SOX:
  • SOX Act section 906 statement, in which management attests to the integrity of finan-cials and indicates that no hidden or questionable transactions exist
  • SOX Act section 302 statement, in which management attests that full disclosure of the section 401–404 internal controls has been made to the audit committee, and that no deficiencies or weaknesses were withheld
Management must make their assertions of compliance without reliance on the auditor. The intention of these two statements is to bind management with liability. SOX is essentially a disclosure law. Its purpose is to provide government authorities with a method of ensuring criminal prosecution of corporate officers if management misrepresents the truth.

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