THE STATE OF PROFESSIONALISM IN INTERNAL AUDITING

Abstract

Damages resulting from the crisis in the savings and loan industry, continuing allegations of independent audit failures and recent media reports of significant declines in the moral integrity of new entrants to the managerial job market have heightened concerns about top management's moral integrity and commitment to traditional internal control objectives. Many believe that top management officials in both the private and public sectors are failing to take adequate measures to install, maintain, and monitor adequate internal control structures within their organizations. Other related matters that appear to be inadequately addressed include the measures that need to be taken to deter fraudulent acts and unethical conduct. Recognizing these apparent deficiencies, authoritative bodies such as the Treadway Commission have begun to look to the internal audit function to provide organizations additional internal assistance in identifying and remedying internal control deficiencies, curbing fraudulent acts, and monitoring the ethical conduct of organizational employees. For example, a significant portion of the recommendations made in the Treadway Commission Report focuses on strengthening the organizational position of the internal audit function in order to improve both its authority and capability to accomplish these duties. These recent events have rekindled concern by scholars and practitioners about professionalism in the field of internal auditing.1 Much of this interest is driven by the implied presumption that further enhancements in the status of internal auditing will have a positive influence on the field's capabilities to address the issus of fraud, deficient controls, and unethical behavior in commerical and governmental practice. The status of internal auditing is an important issue. Internal Auditing must possess the status of a in order to attain the requisite authority to enforce its standards on practice. Until this status is attained, commercial compliance with internal auditing standards will be largely voluntary. A field of work that must rely on voluntary compliance with its standards lacks the genuine status possessed by the well established professions such as medicine, law, architecture, and public accounting. This study examines, from a historical perspective, the progress made by the field of internal auditing since 1977. The overriding objectives of this examination are: (1) to determine if the field of internal auditing has achieved status; (2) to assess whether progress has been made in enhancing the status of internal auditing since 1977; and (3) to suggest any actions disclosed by the analysis that might be taken by the field of internal auditing in the future to further enhance its status or the prospects thereof. This study of professionalism focuses on events and activities that have transpired since 1977 for three major reasons: First, many authorities believe that the passage of the Foreign Corrupt Practices Act in 1977 marked the beginning of a new era of improved opportunities for internal auditors.2 Thus, events and activities transpiring since 1977 might be expected to reveal stronger evidence of status for internal auditing than events and activities transpiring before 1977. second, many internal auditors consider the initial release of the Standards for the Professional Practice of Internal Auditing by the Institute of Internal Auditors Inc. in 1978 to be one of the most important professional milestones ever achieved by the field of internal auditing.3 Therefore, activities and events transpiring since 1978 under the support of these new standards should provide better evidence of status than activities and events transpiring prior to the attainment of this notable milestone. Finally, two previous studies published by Burns and Haga [1977] and Dierks and Davis [1980] have cast serious doubt that internal auditing qualified as a profession (in the strictest sense) prior to 1977. …