The Need for an Internal Auditor Report to External Stakeholders to Improve Governance Transparency

Quistions on Academic Research Case

The need for an Internal Auditor Report to External Stakeholders to Improve Governance Transparency

Naimah AlBaharnah

Prof. Liotta, Joseph P

AC629, Contemporary Issues In Auditing

June 19, 2014

What is the issue being addressed in the paper? 


Sarbanes Oxley mandates requires all public companies to establish internal controls and procedures for financial reporting. In addition they must document, test and maintain those controls and procedures to ensure their effectiveness. The purposes of SOX are to emphasis on corporate governance and to reduce the possibilities of corporate fraud by increasing the stringency of procedures and requirements for financial reporting.

Under Sarbanes Oxley act, management is required to produce an "internal control report" as part of each annual Exchange Act report. This paper discusses the need for an internal auditor report (IAR) to increase governance transparency for external stakeholders. While the internal audit function is an important and distinct governance mechanism, external stakeholders typically lack the direct relevant information about the function that is available to insiders from other governance mechanisms (e.g., management, audit committee, and external auditor).

b. What are the findings of the paper?

The paper argues that the discloser of the internal auditor report (IAR) is very important because it provides investors with independent and objective evaluation of the company’s financial and operation activities such as corporate governance and evaluate the operational efficiencies. The research specifies that disclosing a formal internal audit report (IAR) may improve the overall governance transparency, which stakeholders rely on to improve confidence and decision-making, in addition to reduce information asymmetry costs.

c. Why is this paper important to auditors, and what are the implications of this paper for the auditing profession?

The paper uses...