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<p>I read with interest the article on page one of the March 27th issue entitled “NCUA says credit unions must abide by SEC rules when dealing with Andersen”. This article, like many other recent media articles, implies an inherent lack of independence when an organization provides internal auditing services to an external audit client. This article paraphrases one expert’s caution against “providing an external audit and then being contracted to perform an internal audit”. In the very same issue, Mike Welch’s column discussed the many faces of conflict of interest. Right on, Mike! I believe consulting and auditing presents a conflict of interest. But, let’s make sure we all understand the difference between auditing and consulting. Auditing is a process of testing some or all transactions, after they have occurred and been recorded, to gain assurance as to whether they were properly recorded. Internal auditing is designed to verify that policies and procedures are being followed to accurately record financial transactions. External auditing is designed to provide assurance that financial statements are presented in accordance with generally accepted accounting principles. If an internal audit function does not exist, the external auditing procedures are more detailed and likely include some of those procedures that would be done as part of an internal audit function. A CPA’s code of professional ethics requires independence when performing an external audit, because the primary user of the audit report is expected to be the public. This independence must include not only financial independence, but also independence from making decisions, setting policy, or recording transactions for the business. Internal auditing does not impair this independence, because internal auditing does not include any of these elements. Auditing is auditing, whether it is directed toward the expression of an opinion on the financial statements or whether it is intended to evaluate controls over the recording of the transactions that support the financial statement. Consulting is another story! While some consulting issues may be acceptable, such as a buy/lease analysis in which the credit union still makes the ultimate decision, be very careful about more significant issues. If your credit union needs assistance setting up an accounting system, or if you want to implement a new product, or you are looking to hire a new CFO, your independent auditors may not be not the best people to ask. For any person or firm, it would be difficult at best to help a credit union make or implement a decision or process, and then be able to independently audit that process or person. If the CPA found a significant flaw, could they really blow the whistle on themselves? And even if everything looked fine, might not some people suspect that they just didn’t test thoroughly enough, since they were testing their own decision? I submit that on the other hand, whether a CPA is performing an internal audit, external audit, or both, their mind set is open to examine the facts and circumstances as they develop, without prior prejudice. James A. Higbee, CPA, Partner, Rowles & Company, LLP Baltimore, Maryland Past member, AICPA Credit Unions Committee Past Chairman, MACPA Auditing Standards Committee</p>

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