the purpose of internal auditing?

8/14/2019 The Purpose of Internal Auditing?

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The Purpose of Internal Auditing?

y Eyes and Ears

y Policeman

y Watchdogy Consultant

y Catalyst

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IIA Statement of Responsibilities

Purpose:y Internal auditing is an independent appraisal

function established within an organization toexamine and evaluate its activities as a service tothe organization.

y The objective of internal auditing is to assistmembers of the organization in the effective

discharge of their responsibilities.y The audit objective includespromoting control at a

reasonable cost.

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The Audit Process Model

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Internal Audit

Knowledge

and Skills

Computers,

Software and

IIA Standards

Time and

Money

Reputation

for Integrity

and Fairness

Internal Audit

Practices and

Procedures

Analyses,

Appraisals,

Recommendations,

Counsel andInformation

Promote the

Effective use of

Internal Control

Supporting the

Organization in

the Discharge of

their

Responsibilities

INPUTS PROCESSES OUTPUTS OUTCOMES


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IIA Statement of ResponsibilitiesSc e:

y The sc e f i ter l iti shoul e compassthe exami ationof the adequacy andeffectivenessof the or anizations systemof internal control

andthe quality ofperformance in carryingoutassignedresponsi ilities.

y Assess e t (a eq acy a effective ess).

y

a ce e t ( eas ri g erf r a ce q ality i r ve e t).

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The Nature of Business Risk

Risk is a c ce t se by

a it rs a a agers

t ex ress c cer s ab t

t e r bable effects f acertai e vir e t.

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Control and RiskControl itigates risk:

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INPUT OUTPUT? PROCESS

Feedback Loop

Compare to

Standard Criteria

Preventive Control

INPUT OUTPUT?PROCESS

Feedback Loop

Compare to

Standard Criteria

Detective Control


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Internal AuditFramework

y Planning

y Performing

y Reporting

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AUDIT

ASSIGNMENT

AND OBJECTIVE

RESEARCH

PRELIMINARY

SURVEY

RISK

ASSESSMENT

DEVELOP AUDIT

PROGRAM

FIELDWORK

(TESTING)

DISCUSS

CONCLUSIONS

DRAFT AUDIT

REPORT

Phase I:

Planning the Audit

Phase II:

Performing the Audit

Phase III:

Documenting the Audit


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Establishing Audit Objectiveand Scopey

Ensure a positive lin etween the audit o jectiveand the entitys goals.

y Ensure the audit program will produce the

evidence as re uired.y Ensure that each test will provide the evidence

re uired y the audit program.

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Audit

Objective

Unit

Goals

Entity

Purpose

Linking the Auditto the Business Plan

ServingCustomer

Needs


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Planning the Audit

y Researc

y RiskAssess ent

y Audit Strategy

y reli inarySurveyy olicies and rocedures

y Inputs and Outputs

y Control Stepsy eople

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Planning Step #1

Perform Research on Area under Audit

Research is important for understanding, ut wemust e a le to recognize when enough isenough

Research tells us define the historical issues, current

issues, mar eting issues, pervasive ris s, personnelissues, and future issues.

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Planning Step #2

P

repare Your Hypot esis

1. T e activity is operatingnor ally W

hat is =W

hat shouldBe2. T e activity is not operating as it s ould in

some significant ayWhat is does not = What should e

3. Some value in bet eenT ere are minor differences bet een

What is andWhat should e

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Planning Step #3

Send ngagement Memo

1. To executive management

2. Include t e name of t e audit effort and t einitiationdate

3. Request t e name of a contact person

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Designing Audit Tests

y Evidence is created from tests or questions.y T e creationof t e right test or question to ask is aprocess of orking back ards from the audit objective.

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Evidence:What provesthe

hypothesis?Tests:

What createsthe

evidence (y/n)?Hypothesis:What do you

A Logical Sequence: From Teststo Objective

Audit

Objectivewant to prove?


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Documenting the Audit

Automated ork Papers provide

y Aframe ork toguide the audit process.

y Support for the conclusions reached by the audit.

y Arecordof the audit process and its conformanceto standards.

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Work Papers Good Practices

y Use electronic templates to capture data:

* Background & Scope Document

* Risk* Control

* Test

*Audit Point Sheety Structure your ork paper documents as carefully as

you ould the final audit report.

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A Framework for the Audit1. Audit Strategy/ Audit Scope & Objective.

2. CreationofRisk Based ork Papers

3. Collectionof basic reference materials (flow

charts, etc.)

4. Determinationof tests needed5. Sample Design

6. Preparationofmeeting agendas

7. Follow-upon informationgleaned/re-direction8. Documentationof test results and conclusions.

9. CreationofAudit Point Sheets.

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Writing Up Conclusions

Best practices include:

y Test descriptionor question.

y Results (clearly stated).

y Conclusion reached as a result of that test.

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Best Practices (cont)

y Discussionof the conclusionwithmanagement.y To avoidmisunderstandings.

y Togive management a heads-up about issues.

y To encourage corrective action as soon as possible.

y Cross-reference the audit point sheets to theconclusions in the auditwork papers (and back-reference the conclusions to the report).

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Summarizing and EvaluatingResultsy

The audit process creates evidence.

y Evidence is summarized into conclusions.

y Evidence (facts) + Context (impact) = Finding

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Evidence:Provides factual

information. Test:

Creates the

evidence. Conclusion:

Puts the facts in

context (impact).

The Logical Results: From Tests to Findings

FINDING


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The Audit Point Sheet

y

Ensures all aspects of pro lems (findings) arecaptured.

y Useful as ready documentation.

y Serves as a asis for

discussion.

yAids the summarization

and report writing.

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W

riti gE

ffective ite rts

Reports are important because they:

y Provide documented communication andassurance to senior management.

y Provide operatingmanagementwith

assessments ofoperations and corrective action.

y Provide the auditorwith records for follow-upof audit results.

y Provide the audit groupwithmarketingopportunities todemonstrate added value.

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Following Up Corrective Actions

The control aspect of auditing is notcomplete until corrective action is taken (orthe risk formally assumed by seniormanagement).

Effective statements of corrective actioninclude:

y The specific steps to be taken,

y The completiondate andy The person responsible for completion.

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Audit Interaction with Auditee

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Auditor Manager

Internal Audit

Competition

Auditor Manager

Internal Audit

Cooperation

Audit Team

Internal Audit

Collaboration

Auditor Manager


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Building Trust with Auditee

y The slowway- Making and keepingcommitments

y The fasterway-

Collaboration.

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the purpose of internal auditing?

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