Importance of Information System Auditing

Evaluation of Effectiveness of Auditing of Information System within Corporate Governance Structure in the UK business organizations.

Abstract

This dissertation will research and review the conceptual framework of effectiveness of auditing (internal audit) of information system within the Corporate Governance structure, where information & technology is deemed a key to system success or failure. The paper will then aim to focus on case study approach on two industry sectors in UK to explore a within correlation within effectiveness of Audit function and Corporate Governance structure through a lens of clear & transparent information flow and system by means of technology & innovation through accountability.

Introduction

The overall focus of this dissertation is around the critically analyzing and evaluation of auditing of information system in corporate governance structure with strategic significance of information and technology. Auditing of information system is sometimes referred as IT auditing that in modern language that states flow of information processes throughout the organization that is integral part of strong and affective corporate governance. Information integrity and disclosure is the key to successful governance.

Corporate Governance has accomplished developing acknowledgment in recent years in light of financial reporting scandals, for example, Enron, WorldCom and Parmalat, which lessened trust in the freedom and unwavering quality of the auditing profession involved, as well as the accounting profession and financial markets all in all (Ibrahim El-Sayed Ebaid, 2011). Inside this structure of present day business world, the part of an inner control framework is synergist since it is viewed as a source from which center capacities are given or drawn and are in this way changed into upper hands. Be that as it may, the pivotal part of internal auditing for the business accomplishment, there is no such a review examining the collaboration between internal auditing and corporate governance (Karagiorgos et al., 2010). For the above reasons the motivation behind this research is to focus on the evaluation of effectiveness of Auditing of Information System within Corporate Governance Structure in the UK business organizations.

Auditing is one of the fundamental components for the effective working of the business and makes a difference an association to confront the outer world with exact data on its business and issues identified related to accountability. Initially auditing function was essentially concerned with just the money and finance related issues inside the business that is accounts for the business. Evidently, the income created by the organization and the costs related are the major contributing variables for decision making on the tax and shareholder benefits. Close by, the development of data innovation (IT) and the expansion in people in general awareness has assist heightened the requirement for directing a proficient auditing procedure to give accountability to their business exercises.

It is also vital that the corporate governance of an organization is fundamental for the advantage of the partners as well as for the financial dependability in the business showcase and in addition the whole country. This research is aimed to display a critical research and evaluation of effectiveness of Auditing of Information System within Corporate Governance Structure in the UK business organizations. The research will toss light on the different perspectives identify with accomplishing adequacy in through evaluating information system as one of the component of corporate administration and basically investigations of the innovation and technology on information transparency.

Aim and Objectives

The focal point of this thesis will be to analyze the productivity of auditing of information system framework in the corporate administration among the UK business associations. This will be accomplished by the research on the following aim and objectives.

1. To appraise the phenomenon of corporate governance and its effectiveness for an organization both inside and outside to the business.

2. Critically analyse the role of information and development of information system frameworks within the scope of corporate governance.

Research Definition

The research will be refined and focused utilizing using secondary information resources only. This is mainly due to the fact that a general public opinion on the auditing of information system may be inappropriate and deficient as the business organizations may not disclose their corporate’s sensitive information apart from that is published in the annual submissions/report due to data protection and privacy (Leung, P.et al 2004).Thus the investigation through case study will be completely subjective in nature (i.e.) the exploration is based upon the journals and published white papers as opposed to utilizing primary information for measuring the analysis.

The contextual critical examination will be led upon the vital energy and banking domains of the UK economy. While a basic investigation on HSBC bank Plc will be displayed under the banking area, National Grid Transco, Plc is the organization in question for the Energy segment of the UK. The contextual investigation on these organizations will give critical insight on the utilization information technology and the organization’s endeavor to fulfill viability of effectiveness of auditing of information system related outcomes for corporate governance.

Corporate governance context

There had been much written and researched about corporate governance, IT audit, and Information system in literatures recently, but most research has been done considering one or two variables from different angles, such as Corporate Governance and Auditing, IT audit and Corporate Governance, Information System and Corporate Governance etc. Less been written from information perspective to explore Information System Audit and Corporate Governance viability specifically by use of technology in modern era of corporate world, that is the fundamental aim of this research. Following literature research explain and explore more about the individual concepts that prove essential ingredients to successful stewardship of the business.

According toToffel, M.W. (2006), states that investors expression of need for information relevant to company’s economical information is not just raw accounting data but interpretation lying within. He further states that asymmetric information and potentially adverse disclosure prompts a question mark to capabilities of corporate governance structure of companies.Baek et al. (2008) argues further that directors consider that they have disclosed full information that is required, yet most experts and financial specialists assert that they ought to try to do as such.

Another aspect of delivery of information through the use of information system is e-commerce that is very popular and proved to be effective communication channel without side world, i.e. stakeholders. Yabing et al., 2010 concluded in his study that there are considerable number of organizations which don’t utilize their websites to convey significant financial data to the external stakeholders & users. A current review that has an example with 30 traded organizations disclosed that a great deal of organizations utilize their website in inappropriate way, particularly to communicate information considering corporate governance that pose a question to the stewardship of organization as a whole. To overcome this weakness and to mitigate potential risk to corporate governance auditing plays vital role by assessing overall information system of the organization.

A vital clarification between governance and administration is made by Bird, F. (2001), states that while managers and officials control, create, monitor and execute business objectives on an everyday basis, directors and other board structures manage overall business strategy, culture and course. He further states that “Executives manages organizations by morality of the authority commissioned to them by owners of the organization”, hence making a strong contrast between the assorted components of corporate governance and management.

Auditing Information System

In modern IT era, the audit process quality within the organization have become an integral and fundamental part of corporate governance quality and transparency.

As respects to this, the nature of information systems auditing has likewise accepted a parallel to that. The inherent feature of information systems auditing, and the abilities fundamental to do such reviews, ideally require all around substantial norms & standards that execute particularly to information systems examination & scrutiny. The amalgamation of Information Technology audit, arranging and methodology with corporate governance and the key utilization of data frameworks (IS) have been of topical subject to administration & management experts and IT scholars for quite a while. The move of accentuation can be connected to changes in availability and cost execution proportions in innovation/technology. It can likewise be identified with subsequent changes in potential applications. The converging of hardware and interchanges innovations, and the more far reaching utilization of databases, systems, and coordinated frameworks requiring long-term audit and planning viewpoints, additionally fortified for powerful arrangement from corporate governance perspective in UK.

IT Governance

Kingsford, R., Dunn, L. furthermore, Cooper, J. (2003) states that Information Technology governance is referred to as a sub-set of corporate governance. It appears to be logical then that the meaning of corporate governance will give a helpful start off to an investigation of the definition and proper utilization of the term IT governance. One domain is the relatively recent focal point on corporate governance and the other is strategic information systems within the organization.

Web, P. Pollard, C., Ridley, G. (2006),   “Attempting to Define IT Governance:  Wisdom or Folly?”

Strong governance has for some time been viewed as urgent for improving the long-term value of stakeholders in the organizational domain. In the new innovation driven information age, strengthen corporate governance is considered exceptional best practice and a key segment of market train. Recent demand from stakeholders, shareholders and others owners of business, for more prominent responsibility from corporate board and audit committees that will probably upgrade the nature of corporate stewardship and in the end prompt to more productive capital markets. However, Sarbanes Oxley report in US and the Cadbury Code in the United Kingdom that requires that audit committees adhere to certain professional guidelines & rules (e.g., internal controls & risk reporting requirements and disclosures), there are few generally acknowledged standards for good governance within the organization.

Role of Information in Information System Audit & Corporate Governance

Ward, J. & Peppard, J. (2002) argued that the information systems in a business enterprise not just incorporates the innovation and technology related items additionally those segments of the business that infect process and create yield from the information like the costs, income and purchases. Moreover, they emphasized that the vital utilization of information to encourage effective decision making by the senior administration of the organization, that certainly build the need to distinguish critical information and in addition keep up transparency of the information to furnish independence and accuracy with quality. Information system has seen vital development in each circle of business with the expansion in the competition and innovation & technology (IIA, 2004)

Christopher Barnatt (2000) contends that the corporate governance in a business organization despite the fact that grasps the reviewing of the fund and income building up a responsibility, predominantly relies on the information that is underlying the income streams or the cost brought about since the financial related measurement by the organization is construct upon the real information with respect to their everyday business. This further makes it clear that information is not just assumes a critical part in dealing with the review & auditing information but also a key part in approving the crucial information that is really used to represent the income inside the organization.

The above proclamation obviously clarifies that the data innovation (technology) in stepping stone for the business processes and income apart from just the element of client relationship etc. John Ward (2000) argued that the information system in a business domain with reference to corporate governance of the organization gives the underlying contributing milestone to the accountability of income transparency of the overall business. Furthermore, he poses the fact that the likelihood to give false information to cover any major issues inside the business will at the end may influence the corporate governance of the business. It is evident from the argument above that the innovation & technology underlying information processing itself required to be formulated and validated in order to approve privacy and to counteract unapproved access to the data.

References:

Bird, F. (2001), Good governance: A Philosophical discussion of the responsibilities and practices of organizational governors, Canadian Journal of Administrative Studies, No. December,  298-312

Baek, Y.H., Kim, D., Kim, J.W. (2008) Management Earnings Forecasts and Adverse Selection Cost: Good vs Bad News Forecast, International Journal of Accounting and Information Management, Vol. 16, Issue 1, pp. 62-73.

Christopher Barnatt, (2000), Management Strategy and Information Technology, Text and Readings, Thomson Business Press

Ibrahim El-Sayed Ebaid, (2011) “Corporate governance practices and auditor’s client acceptance decision: empirical evidence from Egypt”, Corporate governance, 11(2), pp. 171-183.

Institute of Internal Auditors UK, (2004), IT Audit, UK

John Ward and Joe Peppard, (2002), Strategic Planning and information Systems, 3rd edition, John Wiley and Sons

Karagiorgos, T., Drogalas, G., Tampakoudis, I. and Gotzamanis, Ε. (2010) “Internal Auditing as an effective tool For Corporate Governance”, Journal of Business Mgt, 2(1), International Science Press.

Kingsford, R., Dunn, L. and Cooper, J. (2003), “Information Systems, Information Technology Governance and Organizational Culture”, in 14th Australasian Conference on Information Systems, Perth, Australia.

Leung, P., Cooper, B.J. and Robertson, P. (2004) The role of Internal Audit in Corporate Governance and Management, RMIT Publishing, Melbourne.

Toffel, M.W. (2006) Resolving Information Asymmetries in Markets: The Role of Certified Management Programs, Working paper, Division of Research, Harvard Business School, Vol. 7.

Web, P., Ridley, G., Pollard, C. (2006), “Attempting to Define Information Technology Governance:  Wisdom or Folly?” 39th Hawaii International Conference on System Sciences – 2006, Australia

Yabing J, Viju R. and Wullianallur R. (2009), Web-Based Corporate Governance Information Disclosure: An Empirical Investigation Volume 22, Issue 2. 19 pages