Internal auditing -- A historical perspective and future directions;

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Internal Auditing—A Historical Perspective and Future Directions
Victor Z. Brink
Columbia University, Professor Emeritus
An inquiry into the history and forward directions of internal auditing can best begin with a definition. In the new Standards for the Practice of Internal Auditing just issued by The Institute of Internal Auditors, internal auditing is defined as ". . . an independent appraisal function established within an or­ganization
to examine and evaluate its activities as a service to the organization." The Standards then go on to say that "The objective of internal auditing is to assist members of the organization in the effective discharge of their responsi­bilities.
To this end, internal auditing furnishes them with analyses, appraisals, recommendations, counsel, and information concerning the activities reviewed. The members of the organization assisted by internal auditing include those in management and the board of directors. Internal auditors owe a responsibility to both, providing them with information about the adequacy and effectiveness of the organization's system of internal control and the quality of performance." The reference to internal control is further clarified in the Statement of Responsi­bilities
issued by the same Institute where internal auditing is described as ". . . a managerial control which functions in measuring and evaluating the effectiveness of other controls." All of these statements confirm the broad con­structive
nature of internal auditing.
The fact that the term "internal auditing" includes the word "auditing," and the fact that the work of the external auditor—the independent public ac­countant—
also has to do with "auditing," suggests that the only difference be­tween
the two professional activities is whether the individual is an employee of the organization or is engaged as an outside professional on a contractual basis. The fallacy of that oversimplified view can be shown by comparing the respective missions of internal and external auditors. In the latter case—if we exclude the wide range of special consulting services—the primary mission of the external auditor is to examine the annual financial statements of the organization in such depth as to make possible the expression of an opinion as to their fairness in conformity with generally accepted accounting principles. That opinion in part is sought by the board of directors and corporate management for their own use, but even more for the outside parties who rely on the financial statements— creditors, investors, government, and the like. In carrying out this extended mission, the external auditor functions as an independent agent for a negotiated
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