Why Audit Controls Are So Important In Avoiding Scandals

Audit controls are the means by which the subjects of the audit are measured, to determine the likelihood of any figures being genuine or faked. Auditing is a crucially important factor in any capitalistic economy, because it allows companies to verify through a third party that they are worthy of investment. The system works well most of the time, although it is not infallible. There have been scandals in recent times where companies have gone bankrupt after being audited because the truth was concealed from the auditors.

Auditing is a discipline which had plenty of time to grow. The first recorded audit was in the fourteenth century, although it was obviously very different in nature from the modern audit. Corporate audits have been growing in complexity as corporate structures have become more complex. There have been many changes, such as the development of internal auditing for the benefit of managers. This is a way of improving company productivity in many different ways, as virtually any process can be audited. The use of controls is often limited to financial auditing where there are historical precedents.

Controls in auditing have assumed an even greater degree of importance in the last decade, as the auditing and accounting world has suffered some dramatic failures. There have been several scandalous incidents where companies have deliberately falsified accounts and covered up internal papers to deceive auditors, and where those auditors have failed to spot the deceit. The most famous of these, the Enron scandal, was so serious that the auditing firm had its license to practice taken away.

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Internal auditing is becoming more important than ever, for several reasons. Firstly, there are more managers wanting to assess the performance of individual departments financially. This is not so easy when the corporate structure has become more complex and it is harder to gain an overview. Internal auditing systems are also being incorporated ever more into external auditing, and this makes it easier to establish controls against which everything else can be measured. There is also internal process auditing, which is the hardest discipline in which to establish controls. This is because each process is individualized.

The use of audit controls to determine potential irregularities has assumed great importance in the light of scandals which have rocked the accounting world. The auditors of public companies are now using methods which mirror the internal auditing procedures, so that anything which is inconsistent with the prevailing patterns can be noticed. Establishing the right controls for everything to be measured against is the critical factor, and experience is extremely helpful in this area. Most modern corporate accounting is carried out by a select few big name operators, who are able to trade on their established name to win business, and who also have extensive experience of establishing audit controls.

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Alum Rock faces credit slam after critical state audit - The Mercury News

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