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Role of Internal Auditor in Corporate Governance Framework

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Role of Internal Auditor in Corporate Governance Framework
Contents Page 1.0. Introduction 2 2.0. Background 2 2.1. Objectives 3 2.2. Methodology 3 2.3. Layout 3 3.0. Literature Review 4 4.0. Theory 5 4.1. Internal Audit 5 4.2. Corporate Governance Framework 5 5.0. Case Studies 6 5.1. Royal Dutch Shell 6 5.2. Royal Bank of Scotland 6 6.0. Application of theory 7 6.1. Royal Dutch Shell 7 6.2. Royal Bank Of Scotland 7 8.0. Limitations 8 9.0. References 9

1.0. Introduction

A good governance system in an organization begins with having internal audit function. The value and the need to focus on improving strong corporate governance have increased due to a series of failure (bankruptcy and fraud) and financial scandals like earnings restatement to ensure financial reporting quality (Zeleke Belay, 2007). These corporate upheavals have driven external regulators to find ways of promoting greater accountability, disclosure and transparency. The main role of corporate governance is to restore the trust and market confidence as well; shareholders. (Carl Rosen, 2010)
It has been widely recognised that the role of the internal auditor becomes a continuing contributor in terms of developing good corporate governance practices and structure. It is said that an effective internal audit function enables the board to perform its corporate governance duties through organizational involvement, assessment, training, professional guidance and communication at all levels within the organization (Kenneth D’Silva, Jeffrey Ridley, 2007).
Audit committee, managers, internal auditors and external auditors play a critical role in effective control and appropriate leadership within the organization to act in the interest of the shareholders. (Sridhar Ramamoort, 2003). Most companies recognised and valued internal auditing and hence, the role of internal auditors has escalated and is being relied on to contribute significantly in business improvement, strategic and operation risks (Kenneth


References: Amanda Williams. 2012. Internal Audit. [ONLINE] Available at: http://www.accaglobal.com/content/dam/acca/global/PDF-students/2012s/sa_apr12_p1_audit.pdf. [Accessed 13 March 2013] Andrew R Barclay Simpson, 2013. RBS had 21 staff involved in Libor scandal. [ONLINE] Available at: http://www.barclaysimpson.com/news/rbs-had-21-staff-involved-in-libor-scandal-news-801537104. [Accessed 13 April 2013] BBC News Carl Rosen. 2010. Corporate Governance in the Wake of the Financial Crisis [ONLINE] Available at: http://www.unctad-docs.org/files/CG-in-Wake-of-Fin-Crisis-Ch5.pdf. [Accessed 13 April 2013] CFTC, Melissa Jürgen Common Dreams. 2004. Shell Report Exposes Lies on Oil Reserves. [ONLINE] Available at: http://www.commondreams.org/headlines04/0419-08.htm. [Accessed: 10 March 2013] Dallas, Lynne Dechow, P., Sloan, R. and Sweeney, A. (1995). ‘Detecting earnings management’ The Accounting Review, 70: 193-225. [Accessed 02 April 2013] Deloitte eHow.com. 2013. Role of Internal Auditing in Corporate Governance. [ONLINE] Available at: http://www.ehow.com/about_6614339_role-internal-auditing-corporate-governance.html. [Accessed: 02 March 2013] Ernst & Young - United Kingdom Grant, R. and M. Visconti. 2006. ‘The strategic background to corporate accounting scandals’, Long Range Planning 39, 361-83 Holt, Travis P Ionel Bostan, Veronica Grosu. 2010. The Role of Internal Audit in Optimization of Corporate Governance at the Groups of Companies. [ONLINE] Available at: http://store.ectap.ro/articole/444.pdf. [Accessed 13 April 2013] Jan Cattrysse Kenneth D’Silva, Jeffrey Ridley. 2007. Internal auditing’s international contribution to governance. [ONLINE] Available at: http://www.lsbu.ac.uk/bus-rafg/internal-auditing-governance.pdf. [Accessed 13 April 2013] Myfinances Reuters. 2013. UK in-house auditors face more scrutiny after Libor scandal. [ONLINE] Available at: http://in.reuters.com/article/2013/02/11/britain-banks-audits-libor-idINDEE91A09J20130211. [Accessed 15 April 2013] Risk Business Zeleke Belay. 2007. Internal Audit & Corporate Governance. [ONLINE] Available at: http://www.scribd.com/doc/2194671/Internal-Audit-Corporate-Governance. [Accessed 10 April 2013]
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