Internal audit chiefs are calling for far-reaching changes to the services external auditors provide to clients and a major overhaul of corporate governance amid the discovery of widescale fraud at WorldCom.
The fraud, uncovered by internal auditors at the US telecoms goliath WorldCom and revealed to the world last week, has severely shaken world equity markets leading to fundamental questions being asked about the way the business world operates.
Richard Nelson, deputy president of the Institute of Internal Auditors, said: ‘WorldCom is the most radical example yet of an organisation where the cocktail of commercial pressure, an aggressive acquisition policy, senior mismanagement and – crucially – flawed accounting practice, was lethal.
‘When a CEO expresses “shock” at the discovery of such a fraud, it’s time for a rethink.’
Nelson urged a change in the relationship between external audit firms and their audit clients, with regard to the provision of consultancy services to these clients.
He said: ‘The role of the external auditor has become more problematic; often external audit firms perform a variety of consultancy roles for the same client, become too close and lose objectivity in the push for profitability. This must change.’
Charles Tilley, chief executive at CIMA backed the IIA’s calls. Tilley said: ‘If there is any silver lining to be had from WorldCom, it is that it has emphasised the importance of these relationships as well as the need for significant organisations to have quality internal audit.’