Tuesday, October 24, 2006

Moody's Mood for Internal Audit

Bondrating firm Moody's recently published a guide to best practices in internal audit oversight for audit committees. In the guide, Moody's emphasized five functions: sufficient scope and timely completion, doable and implemented audit reports, independent, sufficient and supplemented audit team, knowledgable and effective committee performance and a transparent relationship with the internal audit team. Specific examples of each function are as follows: for scope/completion--risk based audit plan and comprehensive coverage; for audit reports--timeliness and action plan for implementation; for audit team--sufficient independence for both internal and external auditors (including suitable officer for reporting) and balance of experienced professionals with more visionary executives; committee performance and communication--sufficient training and regular meetings with personal such as the head of internal audit, lead partner of external auditor and CFO; transparency--"tone at the top" and networking with non-executives as well as executives.

Moody's guide is very well done and should be required reading for new directors of major corporations. Additionally, this would be a good reading assignment for a graduate course in auditing (and perhaps financial accounting theory as well).


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