Accounting & Investing Info for San Antonio A & M
Thursday June 6 2013
The National Association of Security Dealers NASD had a proposal to required an internal audit function to list on their exchange. After receiving comments on the issue the NASD tabled the idea for the time being. Here is the responses from the head of the NASD. I agree with him that internal audit is hardly burdensome and would provide further assurance to stakeholders that someone was watching the hen house so to speak.
This is going to be a bit long sorry: The issues are a required internal audit division with company’s listed on the NASDQ. The reason for such a mandated requirement: to assure investors and stakeholders that there are controls in place. The requirements : Independant and funded. The problems, as I see them: Worst case situation you have a corrupt company who are they going to hire as their internal auditors? the cream of the crop or those that have the same moral compass as themselves?. 2: How can you be indipendant if you are being paid by the people who you are watching? (this is not big gov with checks and balances that secure your job if you blow the whistle). 3: If an internal audit turns up wrong doing and it causes the collapse of the company or allows a hostile take over you (the independant internal auditor) have just cut your own throat both with the company you work for now and all future companys. Imagine you did your job and it cost the viability of the company, who (another company) is going to hire the individual responsible for sinking the last company they worked for.
In closing: Good solid socially moral companys have no real need for a “required” intedpendant, internal auditor. While those that lack such morals will only hire like minded people. You can’t teach moral responsiblity the best you can do is inform of the consequences and hope it deters someone from doing the wrong thing. To the positive it adds another layer of deniability to corporate heads, looks good in PR releases, reassures stakeholders that in fact your new 290 million dollar ranch in west texas was not funded by the company (weather it was or not is immaterial). The negatives if forces company’s to do something they already do (which will cause resentment and backlash) or it will force companys to bring in co-conspiritors at the very least.
Let me know if you disagree and why. The path to hades is paved with good intentions, consider Madoff people trusted him and did not look behind the curtian, same thing here: ooooh they have an indipendant internal auditor division they must be on the up and up.
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Carey
Not all internal auditing is directed at fraud and not all companies are fraudulent. internal audit is primarily concerned with efficiency and decreasing risk.
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Professor Elam 
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