Post on 29-Mar-2018
ROBERT R. MOELLER
John Wiley & Sons, Inc.
Sarbanes-Oxley and theNew Internal Auditing Rules
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Sarbanes-Oxley and theNew Internal Auditing Rules
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ROBERT R. MOELLER
John Wiley & Sons, Inc.
Sarbanes-Oxley and theNew Internal Auditing Rules
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This book is printed on acid-free paper.
Copyright 2004 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New JerseyPublished simultaneously in Canada
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Library of Congress Cataloging-in-Publication Data
Moeller, Robert R.Sarbanes-Oxley and the new internal auditing rules / Robert R. Moeller.p. cm.
Includes bibliographical references and index.ISBN 0-471-48306-0 (CLOTH)1. Auditing, InternalLaw and legislationUnited States. 2. United
States. Sarbanes-Oxley Act of 2002. I. Title.KF1357.M64 2004346.73'063 dc22 2003018290
Printed in the United States of America.
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http://www.copyright.comhttp://www.wiley.com
To my best friend and wife, Lois Moeller
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contents
Preface xi
CHAPTER 1 Introduction 1
Accounting and Auditing Scandals and Internal Audit 1What Are the New Rules? 3Who Will Find this Book Useful? 7
CHAPTER 2 Internal Audit and the Sarbanes-Oxley Act 9
Where Were the Auditors? Standards Failure 10Sarbanes-Oxley Overview: Key Internal Audit Concerns 12Impact of the Sarbanes-Oxley Act on the Modern 57
Internal Auditor
CHAPTER 3 Heightened Responsibilities for Audit Committees 59
Audit Committee Charters and Other Requirements 60Boards Financial Expert and Internal Audit 64Helping to Establish Documentation Procedures 67Controlling Other Audit Services 69Establishing Open Communications 70
CHAPTER 4 Launching an Ethics and Whistleblower Program 71
Launching an Organization Ethics Program 72Establishing a Mission or Values Statement 79Codes of Conduct 81Whistleblower and Hotline Functions 89Auditing the Organizations Ethics Functions 99
vii
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Chapter 5 COSO, Section 404, and Control Self-Assessments 103
SOA Section 404 104COSO Internal Control Framework 123Violation Penalties: Organizational Sentencing Guidelines 146Control Self-Assessments 155
Chapter 6 IIA, CobiT, and Other Professional Internal Audit Standards 165
Institute of Internal Auditors Standards for Professional Practice 165CobiT and Information Technology Governance 175ASQ Audit Standards: A Different Approach 183
Chapter 7 Disaster Recovery and Continuity Planning after 9/11 189
Business Continuity Planning and the New Language of Recovery Planning 190
Continuity Planning and Service-Level Agreements 194New Technologies: Critical Data Mirroring Techniques 195Establishing Effective Contingency Policies: What Are
We Protecting? 197Building the Disaster Planning Business Continuity Plan 198Testing, Maintaining, and Auditing the Continuity Plan 206Continuity Planning Going Forward 211
Chapter 8 Internal Audit Fraud Detection and Prevention 213
Red Flags: Fraud Detection for Auditors 214Public Accountings New Role in Fraud Detection 220IIA Standards for Detecting and Investigating Fraud 223Fraud Investigations for Internal Auditors 225Information Systems Fraud Prevention Processes 226
Chapter 9 Enterprise Risk Management, Privacy, and Other Legislative Initiatives 231
Enterprise Risk Management 231Concurrent with SOA: Other Legislation Impacting Internal Auditors 243
viii CONTENTS
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Chapter 10 Rules and Procedures for Internal Auditors Worldwide 257
SOA International Requirements 258International Accounting and Auditing Standards 259COSO Worldwide: International Internal Control Frameworks 267ISO and the Standards Registration Process 272ITIL Service Support and Service Delivery Best Practices 279
Chapter 11 Continuous Assurance Auditing Future Directions 293
Implementing Continuous Assurance Auditing 294Internet-Based Extensible Mark-Up Languages: XBRL 302Data Warehouses, Data Mining, and OLAP 306Newer Technologies, the Continuous Close, and SOA 311
Chapter 12 Summary: Internal Auditing Going Forward 313
Future Prospects for Internal Auditors 313
Glossary 317
Index 321
Contents ix
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H1 head xi
preface
After years of gradually changing, the profession of internal auditing in thelate 1990s was very different from the internal auditing profession ofan earlier decade. Perhaps one of the more significant changes was that themajor public accounting firms were aggressively assuming responsibility forinternal audit functions through what was called outsourcing. Many inter-nal audit professionals suddenly found themselves working for their publicaccounting firms as outsourced internal auditors. Although there were manygood things to say about this trend, new internal audit roles and responsi-bilities were evolving and the profession of internal auditing was changing.This was all happening during the dot-com bubble of the 1990s, duringwhich time the stock market was going in only one directionupandsome serious thinkers were predicting that there would never be anothermarket downturn.
A series of events in the later 1990s and early 2000 changed all of thisand the rules. Suddenly we were faced with a series of corporate failures andaccounting scandals, many of which were caused by corporate executiveswho liberally bent the rules or blatantly reported false financial results fortheir organizations. Corporate scandals are nothing new in the United States;there has been a major failure about once every ten years over the last cen-tury. However, this was different. The traditional watchdogsauditors andboard membersappeared to be asleep at the switch. There was a clamorto do something! The end result was that, in 2002, the U.S. Congress passedthe Sarbanes-Oxley Act, a major new rule that impacts both internal andexternal auditors, corporate senior management, their boards of directors,and more. Among other matters, the act prohibited the public accountingpractice of outsourcing internal audit services. The Sarbanes-Oxley Act,often referenced as just SOA, is the major new rule discussed throughoutthis book. Internal auditors now have some new responsibilities with regardto their audit committees and external auditors and for overall corporategovernance. This book explains these changes and how internal audit canhelp with other requirements, such as launching an ethics and whistle-blowerprogram or performing effective internal controls reviews under the COSO(Committee of Sponsoring Organizations) framework.
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Some of what we call new rules are not really rules at all but are bestpractices that have gained the attention of professionals worldwide. Businessrecovery and continuity procedures after the World Trade Center terroristattack of September 11, 2001, are an example. Some organizations hadprocesses in place that allowed easier recovery from that event, and we dis-cuss those approaches. Even though internal auditors may not be initiatingsuch practices, they need to have