Heftsiba 88 298.
(photo credit: Ariel Jerozolimski)
In light of the collapse of large companies such as Heftsiba and Clubmarket, internal auditors and accountants are calling for a revision of the Internal Audit Law to require corporate directorates to to invest in proper auditing procedures.
"When a business catastrophe occurs, people immediately ask, where were the auditors? The problem in Israel is that although there is a law that requires public companies to take in internal auditors, the law is inappropriate and not efficient," Yoram Shifer of the accountancy firm Ziv Shifer & Co. told The Jerusalem Post. "The big absurdity is that some companies suffice themselves with allocating a minimal amount of 40 hours a year for the internal auditor, which is not enough.
The law needs to ensure real-time auditing."
He said, however, it does not need to be as extensive as the Sarbanes-Oxley legislation passed in the US in the wake of the Enron scandal, which has provide better visibility into corporate activity.
Recollecting past experience, Shifer said that when approaching new potential clients, he would often get the answer "Thank you we will stick with our 70-year-old auditor who does 50 hours a year."
Israel is one of the very few countries in the world that enacted an Internal Audit Law in 1992, which requires every public or governmental agency, every publicly traded corporation, bank and insurance company to appoint an internal auditor. However, it does not specify the extent of internal auditing services in terms of resources and hours that companies need to take.
"It seems that some companies are appointing an internal auditor just because it's required by law and not because of their value of being the gatekeeper. They allocate a minimal amount of hours for their services to tick off the regulatory demand," said Reuven Schiff, President of the Institute of Certified Public Accountants. "A minimum amount of hours and a minimum budget should be fixed for each company according to its market value, turnover and risk level to reduce the likelihood of these company defaults, which we have seen recently."
It was only last year that the Israel Securities Authority required companies to include in their reports the number of hours the internal auditor has spent in the company.
"It seems that this measure is not enough and more needs to be done," said Moshe Bareket, director of the corporate finance department at the ISA. "What we are seeing is that the level of hours that many companies have allocated for internal auditing services is not sufficient."
Therefore, Shifer has called upon the Justice Ministry and the ISA to make amendments to the law, which would include sufficient resources in terms of manpower and budget to ensure efficient internal auditing.
On the other hand, Ronen Artzi, head of the internal audit department at Baker Tilly Oren Horowitz & Co., is not convinced that corrections to the law and severe regulation will provide the solution.
"We have a negative image and often companies perceive us as problem seekers, but what they need to understand and take seriously is the public accountability they have as a company and the added-value we can provide," he said. "Regulation cannot do it all. Only when the directorate of a company understands and takes responsibility for accountability, will the internal auditor get more responsibility and more resources allocated."