Emerging priorities. In its fist year, the department received a large number of requests from the business unit customers for other projects, and that was clearly viewed by the audit committee as a substantial measure of success.
During the meetings with the audit committee, the CAE also reports the percentage of completion of the audit plan, although this is not the primary measure of the IAD’s success since the department is intended to address risk as it arises. Consequently, the annual internal audit plan is considered to be flexible as it may be revisited on occasion throughout the year and changed as particular needs dictate.
Another major measure of success has been the open acceptance of the department by the business units and their willingness to work with the internal auditors. During the audits scheduled through the risk assessment process, company personnel were willing to offer ideas on areas that they thought they could use additional audits. Several personnel called the internal auditors for assistance as events occurred during the year. For additional monitoring of the effectiveness of the department, the CAE recently implemented a 9-question internet-based audit client survey that is used to gather input and feedback from the audit customers on each of their audit projects (see Exhibit 10)
As time passes and the IAD becomes more established, other metrics of success will probably be developed, such as the percentage of audit recommendations implemented by the various business units.
CONCLUSION
As effective IAD adds value to its organization in numerous ways. It helps the organization to achieve its objectives, improves risk management, strengthens internal controls, and enhances overall corporate governance. In short, a well-designed and functioning IAD advances the business. As such, the motto of The Schwan Food Company’s IAD is “advancing the business.”
DISCUSSION QUESTIONS
1. Why might a company decide to establish and internal audit department (IAD)?
2. Why was The Schwan Food Company, a private company, motivated by the Sarbanes
Oxley Act of 2002 (legislation pertaining only to public companies) to install an internal
audit function? List specific factors (both internal and external) that may have caused TheSchwan Food Company to change its internal control practices and corporate governance structure.
3. Given The Schwan Food Company’s particular situation and set of circumstances at the time that their internal audit function was implemented, what essential characteristics and qualifications should their new Chief Audit Executive (CAE) have possessed?
4. Exhibit 3 includes The Schwan Food Company’s Internal Audit Services Charter. Briefly
Discuss why each of the sections of this charter is necessary and appropriate.
5. Undoubtedly, many non-audit employees at any organization might be initially intimidated at the thought of the establishment of an internal audit department and having to answer questions from internal auditors. What might The Schwan Food Company’s new Chief Audit Executive have done to alleviate these initial fears and concerns? What steps could the new CAE have taken to reduce the “us vs. them” relationship between The Schwan Food Company’s non-audit employees and the staff of internal auditors?