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Internal and External Auditors

How do I prepare, get the right service providers, and select the right type of internal and external auditors?

The 2012 JOBS Act changed the nature of going public. The 2012 has brought one of the most significant changes to these landmark legislations [COX] with the passage of the Jumpstart Our Business Startups (JOBS) Act, which exempts so-called "emerging growth companies" from having to comply with the auditor attestation requirements of Sarbanes-Oxley Section 404(b). This is a potential "game changer" for budding organizations planning or considering an initial public offering (IPO).

What personal qualities, knowledge and skills should internal auditors possess? They should possess and demonstrate, through their work, actions and communication a number of traits, including but not limited to, the following:

  • A commitment to and demonstration of competence in the field of internal auditing
  • Strong financial and operational background in accounting, IT, regulatory compliance and/or the industry in which the company operates
  • Honesty and integrity
  • A strong work ethic and attention to detail

In general, internal auditors should develop and maintain a healthy level of professional skepticism and objectivity to assist in evaluating information and making judgments. Additionally, internal audit professionals should possess exceptional verbal and written communications skills and be proficient in negotiating and reasoning with a variety of departments and groups over which internal audit may have no formal authority. Finally, personal integrity, professional due diligence and curiosity are important traits for individuals tasked with conducting internal audit work.

Internal auditors also need to acquire and then master new areas of expertise and knowledge of emerging or re-emerging issues. This can be accomplished by attending internal and external training programs. ( Protivity, Guide to Public Company Readiness, 2011 ). An important part of the pre-public planning effort is to assess your company’s financial “side of the house” to determine whether it will satisfy strict SEC and underwriter demands.

Your external auditor should be a qualified public accounting firm that has significant SEC experience and is registered with the Public Company Accounting Oversight Board (PCAOB). Because of their industry specialization and extensive SEC experience, many companies choose to engage the services of an international professional service firm.