BI as Internal Audit Tool

8/3/2019 BI as Internal Audit Tool

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Business Intelligence as IA Tool

By: R.S. Murali

Internal Audit Recruitment Review

By: Tim Sandwell

Issue No. 15, October 2010


2/13

PricewaterhouseCoopers provides industryocusedassurance, tax and advisory services to build publictrust and enhance value or its clients and theirstakeholders. More than 154,000 people in 153countries across our network share their thinking,experience and solutions to develop resh perspectivesand practical advice.

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Global expertise,local knowledge*

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2 October 2010 3 October 2010

4October2010

FinancialIntelligenceTraining

MembersMeetingUAE-IAAPastEvents

AtrainingprogramonFinancialIntelligencewasheldattheLe

MeredienDubaiandwaspresentedbyIyadMourtada,President

andLearningConsultant,OpenThinkingAcademy,USA.

Manysmartmanagersoftenmakebadfinancialdecisionsbecause

theydontfullyunderstandhowtoreadandanalyzefinancial

statements.Managersshouldbeabletodealwithfinancial

numbers,understandandconnectfinancialinformation,turn

financialinformationintofinancialknowledgeandrelyontheir

financialintelligencetomakewisefinancialdecisions.

Thisfinancialtrainingprogramwasgearedtowardshelpingmanagers

understandwhatthefinancialnumbersreallymeanandhowto

lookatthebigpicturewhentheymakefinancialdecisions.The

trainingalsodelvedintowhatwentwrongwithEnron,WorldCom

andTycoanddemonstratedtomanagerstheimportanceofrelying

ontheirintuitionandemotionsandnotjustthefinancialfactsin

frontofthem.

OnJune29thamembersmeetingwasheldattheLeMeredien

Dubai.Thehighlightofthiseventwastherecognitionofnew

CIAsandpresentationson`RecentTrendsandBestPracticesonBusinessIntegrityandGoodGovernancebyleadingadvisers

ControlRisksandSimmons&Simmons.UpdatesontheInstitutes

programsandactivitieswereprovidedbytheUAE-IAAPresident,

AbdulqaderObaidAli.Inaddition,therewasalsoaraffledraw

fortheluckyparticipantsintheCBOK2010GlobalInternalAudit

Survey.

4

UAE-IAA Events

10October 2010

frommanyalternatives .So onceagain,

wecan havethes inglenumberengineers

alwayswant itsNPV butin this case,its

theleas tnegativeNPV.

Mostfixedassetsandotherprojectshave

alimitedusefullife. Allequipmenthas

afinitel ifebasedon bothdeter ioration

andobsolescence.Themost common

depreciation methods is s traig h t linedepreciation basedon acquis ition cos tl es s

salvage. Straightlinedepreciation isbased

on consumption ofafixedpercentageof

theequipmentcos t.Often,s traight linedepreciation isusedfor internalaccounting

reportsofprofit/lossandf orcalculating

NPV.

Incometaxratesvaryandmay requireinclus ion ofs tateaswellas federaltaxes .

Engineersmustbeconcernedwith life

cyclecos ts formaking importanteconomic

decis ions throughengineer ing actions .

WhatgoesintoLCC?

LCCincludeseverycostthatisappropr iate

andappropr iatenesschangeswitheachspecific casewhichis tailoredto fitthe

s ituation. LCCfollowsaprocess (Fabryck

1991AppendixA)asshown in Figure1.

Thes tepsare:

S t e p 1 - Identifywhathas to beanalyzed

andthetimeper i o d f o r t h e

projectlifes tudyalong withthe

appropr iatefinancialcr iter ia.

Step2-Focuson thetechnicalfeaturesby

6.Shareholderswant to increase

s tockholderwealthas theonlycr iter ia.

Managementis respons ibleforharmonizing

thesepotentialconflictsunderthebannerofoperati ng forthelowest long term

costofownership. LCCcan beusedasa

managementdecis ion toolforharmonizing

theneverendi ng conflictsbyfocus ing

on facts ,moneyandtime. Whyshouldengineersbeconcernedaboutcos tdetails

forLCC? Itis importantto helpengineers

think likeMBAsandactlikeengineers for

profitmaking enterpr ises .Its allaboutthemoney!

Economic calculationsarewelldefined

butthediscountrate is i mportant(US

Government2002). Accounting andfinanceorganisationssetinternaldis count

rates (whi choften change)to make

economic decis ionseasyforengineers .

C a s h f l o ws i n t o / o ut o f a b u s iness .Thediscounti ng methodsummarizes

transactionsoverthelifeoftheinves tment

in termsofpresentorfuturedollars .

Engineer ing alwayswantas imple,s ingle

value,cr iter iaforaproj ect theanswer

forLCCiscallednetpresentvalue(NPV).

NPV is thepresentvalueofproceedsminus

presentvalueofoutlays . Projectsandprocesseswiththegreates tNPV isusually

thewinner. Often for incrementalchanges

on aproje c t o r w ithin aplant,you lack

enoughdetails to arr iveatapos itiveNPV.

Thusmanyimprovementprojectsmustbeselectedon theleas tnegativeNPV values

Life Cycle Cost (LCC) Analys i s helps in

advocating reducing life cycle cos ts for

equipments in wide areas within allsectors

by showing show/why reliability and

maintainability must be included in upfrontdecis ions for s trategic and tactical is sues

of achieving the lowest long term cos t on

ownership. LCC concepts are resurgi ng

presently within global organisations ,

respons ible MNCs with Corporate SocialRespons ibility (CSR)s in place, including

worldwideGovernmentefforts to minimize

energy cos ts .

WHYUSELCC?

LCChelpschangeprovincialperspectives

forbus iness is sues ,withemphas ison

enhancing economic competitiveness ,by

working forthelowestlong termcostofownership,whichisnotan easyanswerto

obtain. Cons iderthesetypicalproblems

andconflictsobservedin mostcompanies :

1.ProjectEngineer ing wants to minimizecapitalcos tsas theonlycr iter ia;

2.MaintenanceEngineer i ng wants to

minimizerepairhoursas the onlycr iter ia;

3.Production wants to maximizeuptime

hoursas theonlycr iter ia;

4.ReliabilityEngineer ing wants to avoid

failuresas theonlycr iter ia;

5.Accounting wants to maximizeproject

netpresentvalueas theonlycr i ter ia,and;

ALi feCycleCostSummary

FINAL PART

By: JacobJobyVarghese

10

Life Cycle Cost Summary: Final PartBy: Jacob Joby Varghese

6October 2010

components :

SourceSystems:Thesearethehardcore

transactionbasedsys temswheredata

is capturedwhiletheorganisationdoes

itsbus iness .Thedataisgeneratedfrom

functionalareas likeaccounting,sales ,

production,marketing,humanresources ,

etc.Theseares toredintheorganisations

database.Thesourcesys temscouldbe

partofERPorres idi ngi ndi s tr ibuted

functionallywithvar iousdepartments

whousetheirownsoftware/database.

processes ;andforthispurposedependheavily

onthedatabaseoftheclientorganisation.

Is thedatabasealwayscongenialtotheuse

oftheInternalAuditteam?Is thedatabase

effectiveandefficientfortheevaluationof

ther isk,controlandgovernance?

Thispaperattempts to exploretheroleof

BI asan effectivetoolfor InternalAudit.

The Business Intelligence Systems

Components of BI Systems

TheBI sys temsareessentiallymadeofthree

Introduct ion

BusinessIntelligence (BI) isdefinedas

computer -basedtechniq u e s u s e d i n

spotting,digging-out,andanalyzi ng hard

bus iness suchassalesrevenuebyproducts

ordepartmentsorassociatedcos tsand

incomes .ObjectivesofaBI exerciseinclude

(1)unders tandin g a f irms internaland

externals trengthsandweaknesses ,(2)

unders tanding therelationshipbetween

differentdataforbetterdecis ion making,(3)

detection ofopportunities for innovation,

and(4) cos treduction andoptimal

deploymentofresources 2.Theobjecti ves

oftheBI s tatedherewouldsoundextremely

familiar for InternalAuditors (IA),whose

objectivesareinlinewiththese,exceptthat

theyadditionallyfocuson internalcontrols .

Doesthismean thattheBI is atoolfor IA?

Thispaperattempts to examinethis .

TheIns ti tuteofInternal Auditors (IIA)

defines Internalauditingisanindependent,

objectiveassuranceandconsultingactivity

des ignedtoaddval ueandimprovean

organisationsoperations .I t h e l p s a n

organisationaccomplishitsobjectives ,by

br inginginasys tematic,dis ciplinedapproach

toevaluateandimprovetheeffectivenessof

r iskmanagement,controlandgovernance

processes 3 .Theinternalauditmakesuseof

dataoftheclientorganisationandinorder

toevaluateandimprovetheeffectivenessof

r iskmanagement,controlandgovernance

1.Daven p ort,Th omas, Jan u ary2006,HarvardBu sin essRevi ew2.Bu si n essDicti on ary.com.Retri eved02 Sep tember2010

3.h ttp ://www.th eii a.org/gu idan ce/stan dard s-an d -gu i dan ce/ip pf/defin i tion -o f-i n tern al -au d i tin g/Retrievedon 02Sep tember20104.Howson ,Cin d i ,2007, Su ccessfu lBu sin essIn tel l igen ce:Secretsto Mak in gBIaKi ll erAp p ,McGraw-Hil l

Leadingorganisat ions are invest ing in managing informat i on and developing predict ive insights to drive sustainable businessresults.These companies have become masters inPerformance Management - going beyond mereusersofbusinessintelligence

tobecome the Intelligent Enterprises. 1

BI as IA Tool

By: R.S.Murali

ComponentsofBIArchitecture4

6

Business Intelligence as IA Tool

By: R.S. Murali

Audit Week- By: Raza Abdulla

16

Audit WeekBy: Raza Abdulla

18October 2010

abalanceofemployers thatareintendi ng

to recruit.

However,forallthesupposedlysophis ticated

regulatoryregimesandallthesums invested

incorporategovernanceand internal

auditing,thecreditcr is is s tillhappened.This

hastobeseenasafailure.Governmentsand

regulatorsaroundtheworldhaveresponded

tothis failureandtherehavebeenanynumber

ofinitiatives .BaselIII,theoverhaulofbank

capitalandliquidi tys tandards ,isperhaps

themosthighprofileandfarreachingof

theco-ordinatedresponses . Incrementally,

regulatorsarelookingtomakethefinancial

sys temlessr isky.

Iti sequallyclear,perhapsasaresultof

regulatorypressure,thats incethestartof2010 thefinancialsectorin otherregions

oftheworldhaverespondedbyinvesti ng

theymostoften havetheimplicitsupport

ofhighlysolventsovereign governments ,

marketsarebetterableto copewithlosses

ratherthan uncertainty.In this respect,

t h e lack ofadequatelydevelopedsystems

ofcorporategovernanceand alegal

infras tructureisnothelping theregion.

Recruitmentis a f o r m o f i n v e s t me n t .

Companies investandrecruitwhen theyfeel

confident.Gi ven thateffectivecorporate

governancewouldimproveconfidence,it

isperhapseasyto makeacaseforbuilding

on theinvestmentin governancethatwas

apparentbeforethefi nancialcr is is . The

sovereign s tates thatmakeupthe GCC

havetheopportunityto do so.Economic

growthis forecastto acceleratefurtherin

2011 andsurveyevidenceisemerging thatsuggestsgeneralrecruitmentpatternsare

in theprocessofimproving.Thereisnow

Thebackgroundto thefinancialcr is iswas

in ourview reasonablyeasyto explain. It

wascausedbycheapmoneyandtoo much

debt.Theconsequencewas increasedasset

priceswhichsupportedmoredebt,therealr isksofwhichwerehidden byfinancial

complexityand,in thecaseoftheGCC,

opaqueownerships tructures .

If anyone thought the GCC might be

immune when the financial cr is is s truck,

Dubais overheated property market

demonstrated it was not. However, unlike

Europe, where pr ivate debt default hasbeen replaced by the threat of sovereign

debt default, there is little such concern

within the GCC. It is therefore surpris ing,

on the back of both expans i onary fis cal

policies and anticipated economic growthof 4% in 2010, how lacklus tre the recovery

feels . Untilrecently it was clear that outs ide

of the public sector, unlike other regions of

the world, the recovery had yet to reachthe corporate governance recruitment

market.

Perhapstherelati vetransparencyof

Western economies is the difference.

Althoughthecreditrelatedlosses inEurope

andtheUnitedStatesweregreater,they

werealso morereadilyidentifiedand

quantified.Identifying andreporting lossesprovidecertaintyand allows informed

investmentdecis ionsto bemade.Within

theGCC,uncertaintycomes froml ower

levelsoftransparencyandquestionsabout

thegovernanceofs tateownedentitiesand

familyownedcompanieswhichformthe

majorpartoftheregionseconomy.Whils t

BarclaySimpsonInternal AuditRecruitmentReview

By: T imSandwell

18

Internal Audit Recruitment Review

By: Tim Sandwell

20Oc tober 2010

By: VishalThakkar

AbouttheAuthor:

VishalThakkar isaqualified Chartered

Accountantand Certified InternalAuditor.He iscurrentlyworkingwith

Group InternalAuditdepartmentofPetrofacand canbe contacted at

[email protected]

Knowledge UpdateNew on the Horizon: Leases forReal Estate companiesIn Augus t2010 theInternationalAccounting StandardsBoardand

theUSFinancialAccounting StandardsBoardpublishedajoint

exposuredrafton leases ,whichwillhaves ignificantimplications

on leaseaccounting in thereales tatesector ifimplementedin its

currentform.As ignificantoverhaulin leaseaccounting s tandards

hasbeen widelyanticipatedforsometimenow.In factitisover10

years s incethecoreproposals in thisexposuredraft(EDorLeases

ED)werefirs tmade.

Asexpected,theproposeds tandard,ifadoptedin its currentform,

willmakes ignificantchanges tothecurrentapproachto accounting

for leases .In summary,itremoves thedi fferencesbetween

operating andfinanceleasesandbr ingsallleaseobligationsonto

theles sees s tatementoffinancialpos itionasafinancialliability.For

reales tateoccupiers this is s ignificant.In thepas t,themajor ityof

propertyleaseswereclas sifiedasoperating leasesandsoproperty

rentalsweretreatedasan operatingexpenseintheles sees financial

s tatements .Undertheseproposals les seeswouldbeobligedto

br ing thenetpresentvalueoftheir futureleaseobligationsonto

thes tatementoffinancialpos ition.

http://www.kpmg.com/Global/en/Is suesAndIns ights/

ArticlesPublications/Pages/ NOTH-Leases -for -Real-

Es tateCompanies .aspx

Arab Media Outlook: Collaborating

for GrowthThisgroundbreaking report,releasedbytheDubaiPres sClubin

conjunction withPr icewaterhouseCoopers ,reviewsthecurrent

s tateofArabmediaacros s twelveArabi c-speaking countr ies .

SupportedbyDubaiMediaCity,DubaiStudio CityandInternational

MediaProductionZone,theArabOutlook focuseson theimpact

oftheglobalmediatrendson theArabMediaandpredicts the

courseofevents formanyaspectsofthei ndus tryoverthenext

fiveyears .

Developments in digitalmediaandtheemergenceofbroadband

acces sandTVdelivereddirectlytomobiledevicespresentexciting

growthopportunities formediacompaniesacros s theArabic-

speaking wor ld.Yetin orderto benefitfromtheseopportunities ,

certain factorsmus tbeaddres sed:therelativelylimitedavailability

ofaffordablebroadbandacces sacros smuchoftheregion;and

thelack ofreliableaudienceandreadershipfigures :Conclus ions

outlinedin this reportenableus to takean accurateview ofthe

Arabmediaindus trybothin quantitativeandqualitativeterms .

http://www.pwc.com/m1/en/publi cations/Arab_media_

outlook.jhtml

Guide to Using InternationalStandards on Auditing in the

Audits of Small and Medium-SizedEntitiesThesecondedition ofthisGuidewascommis s ionedbythe

IFACSmallandMedi umPractices (SMP)Commi tteeto as s is t

practitionerson theauditofsmallandmedium-s izedentities

(SMEs),andto promotecons is tentapplication oftheInternational

Standardson Auditing (ISAs ).WhiledevelopedbytheCanadian

Ins tituteofCharteredAccountants (theCICA),theGuideis the

fullrespons ibilityoftheIFACSMP Committee.TheInternational

Auditing andAssuranceStandardsBoard(IAASB)s taffandaglobal

advisorypanel,withmembersdrawn fromabroadcros s -section

ofIFACmemberbodies ,haveas s is tedin reviewing theGuide.The

Guideprovidesnon-author itativeguidanceon applying ISAs .Itis

notto beusedasasubs tituteforreading theISAs ,butrather

asasupplementintendedto helppractitionersunders tandand

cons is tentlyimplementtheses tandardson SMEaudits .TheGuide

doesnotaddres s allaspectsofISAsandshouldnotbeusedfor

thepurposesofdetermining ordemons trating compliancewith

theISAs .

TheGuideis intendedto explain andillus trateso as to developa

deeperunders tanding ofan auditconductedin compliancewith

ISAs .Itoffersapracticalhow-toauditapproachthatpractitioners

mayusewhen undertaking ar isk-basedauditofan SME.Ultimately

itshouldhelppractitionersconducthigh-quality,cos t-effectiveSME

audits ,andin so doing,helpthembetterservethepublic interes t.It

is anticipatedthattheGuidewillbeusedbymemberbodies ,audit

firmsandothers ,asabas is foreducating andtraining profes s ional

accountantsands tudents .IFACmemberbodiesandfirmsmayuse

theGuide,eitheras iti sortailoredto suit t h e irown needsand

jur isdiction.Itprovidesabas is fromwhichmemberbodiesand

otherscan developder ivativeproducts suchas training mater ials ,

auditsoftware,checklis ts andforms .

http://web.i fac.org/media/publications/5/guide-to-us ing-

internationa-1/guide-to-us ing-internationa-1.pdf

20

Knowledge UpdateBy: Vishal Thakkar

Working together on theright trackGreetings!

I would like to take this opportunity to extend greetings to all fellow members of the

UAE-IAA and express my gratification at the growing participation in the various events

we have. What is especially encouraging is the fact that our recent efforts in advocating

regular meetings for our members has drawn a good response and so has the interestbeen kindled in the introduction of selective training courses.

The UAE-IAA remains committed to utilize its resources to further its mission and

responsibility to its members. This however needs to be enhanced with full cooperation

and active participation from its members and officers. At this point, I would like to

express my gratitude to volunteers who continue to unselfishly contribute their personal

time and talent to the worthy projects and programs of the Institute.

As we move towards the end of the calendar year, I would seek your support to the

programs and activities of the UAE-IAA through the following:

l Increased attendance of Members Meetings which are free of charge and inclusive

of knowledge-sharing sessions;

l Enlisting as a volunteer to strengthen the UAE-IAA Secretariats force towards

supporting membership and professional development activities;

l Participation in scheduled training courses;

l Knowledge-sharing and contribution to the UAE-IAA newsletter.

The need of the hour is for all of us (now over 300 strong) to come together and put

our best foot forward for the common good of the Institute. We would welcome your

feedback and recommendations for necessary action of the Board. This will contribute

further in realizing the goals of the UAE-IAA Chapter.

Abdulqader Obaid Ali

President

UAE-IAA

MessagefromthePresident

Contents

October 2010

Board of GovernorsUAE-IAA ChapterPresident:Abdulqader Obaid [email protected]

Board Members:

Abdulrahman Al [email protected]

Abdulrahman Ba [email protected]

Adnan [email protected]

Ahmad [email protected]

Ahmed Al [email protected]

Amir [email protected]

Badr Mohammed [email protected]

Karem [email protected]

Khalid [email protected]

Laila Al [email protected]

Mohamed Shehab Al [email protected]

Raza [email protected]

[email protected]

Newsletter Committee:

Vishal ThakkarPetrofac

Farah ArajNational Holding

Mahmoud GhazzaouiDeloitte & Touche, (M.E)

Meenakshi RazdanEmirates Airlines

Editor:Manjula Ramakrishnan

UAE-IAA Newsletter welcomes editorial

contributions and feedback from readers.

Write in to [email protected]

Afiated to The Institute of Internal Auditors 247 Maitland Avenue Altamonte Springs,Florida 32701-4201 USA +1-407-937-1100 Fax +1-407-937-1101 www.theiia.org Copyright 2008

Disclaimer: It is hereby notied that all opinions, facts or views expressed in this magazine are those ofthe author and need not necessarily represent the views of UAE-IAA. The advertising of events, courses,

products and services in this publication does not imply that they have UAE-IAA endorsement.


4/13


Financial Intelligence Training

Financial Intelligence Training (contd)

MetricStream CEO Addresses UAE-IIA

Members on The Changing Face of

Internal Audit

Members Meeting

UAE-IAA Past Events

A training program on Financial Intelligence was held at the Le

Meredien Dubai and was presented by Iyad Mourtada, President

and Learning Consultant, Open Thinking Academy, USA.

Many smart managers often make bad financial decisions because

they dont fully understand how to read and analyze financial

statements. Managers should be able to deal with financial

numbers, understand and connect financial information, turn

financial information into financial knowledge and rely on their

financial intelligence to make wise f inancial decisions.

This financial training program was geared towards helping managers

understand what the financial numbers really mean and how to

look at the big picture when they make financial decisions. The

training also delved into what went wrong with Enron, WorldCom

and Tyco and demonstrated to managers the importance of relying

on their intuition and emotions and not just the financial facts in

front of them.

Shellye Archambeau, CEO of MetricStream

Inc., addressed the UAE chapter of the

Institute of Internal Auditors (IIA) in Abu

Dhabi on Sunday, September 19, 2010. The

event saw Ms Archambeau providing insights

on the evolving role of Internal Audit and

how internal auditors must redefine their

role in this fast-changing business landscape

to drive value by expanding their functions to

risk management, compliance management,

fraud prevention and collaboration with key

stakeholder. MetricStream provides a range

of world-class Audit management solutions for

global corporations to help internal auditors

confidently meet these new imperatives and

challenges.

On June 29th a members meeting was held at the Le Meredien

Dubai. The highlight of this event was the recognition of new

CIAs and presentations on `Recent Trends and Best Practices

on Business Integrity and Good Governance by leading advisers

Control Risks and Simmons & Simmons. Updates on the Institutes

programs and activities were provided by the UAE-IAA President,

Abdulqader Obaid Ali. In addition, there was also a raffle draw

for the lucky participants in the CBOK 2010 Global Internal Audit

Survey.


5/13


components:

Source Systems:These are the hardcore

transaction based systems where data

is captured while the organisation does

its business. The data is generated from

functional areas like accounting, sales,

production, marketing, human resources,

etc. These are stored in the organisations

database. The source systems could be

part of ERP or residing in distributed

functionally with various departments

who use their own sof tware/database.

purpose depend heavily on the database of

the client organisation. Is the database always

congenial to the use of the Internal Audit

team? Is the database effective and efficient

for the evaluation of the risk, control and

governance?

This paper attempts to explore the role of

BI as an effective tool for Internal Audit.

The Business Intelligence Systems

Components of BI Systems

The BI systems are essentially made of three

Introduction

Business Intelligence (BI) is defined as

computer-based techniques used in

spotting, digging-out and analyzing hard

business such as sales revenue by products

or departments or associated costs and

incomes. Objectives of a BI exercise include

(1) understanding a firms internal and

external strengths and weaknesses, (2)

understanding the relationship between

different data for better decision making, (3)

detection of opportunities for innovation,

and (4) cost reduction and optimal

deployment of resources2. The objectives

of the BI stated here would sound extremely

familiar for Internal Auditors (IA), whose

objectives are in line with these, except that

they additionally focus on internal controls.

Does this mean that the BI is a tool for IA?

This paper attempts to examine this.

The Institute of Internal Auditors (IIA) defines

Internal auditing is an independent, objective

assurance and consulting activity designed

to add value and improve an organisations

operations. It helps an organisation accomplish

its objectives, by bringing in a systematic,

disciplined approach to evaluate and improve

the effectiveness of risk management, control

and governance processes3. The internal audit

makes use of data of the client organisation

and in order to evaluate and improve the

effectiveness of risk management, control

and governance processes; and for this

1. Davenport, Thomas, January 2006, Harvard Business Review2. BusinessDictionary.com. Retrieved 02 September 20103. http://www.theiia.org/guidance/standards-and-guidance/ippf/definition-of-internal-auditing/Retrieved on 02 September 20104. Howson, Cindi,2007, Successful Business Intelligence: Secrets to Making BI a Killer App, McGraw-Hill

5. IPPF International Professional Practices Framework of the Institute of Internal Auditors

Leading organisations are investing in managing information and developing predictive insights to drive sustainable business

results. These companies have become masters in Performance Management - going beyond mere users of business intelligence

to become the Intelligent Enterprises. 1

be achieved if these gaps are properly

addressed.

BI Tools and Internal Audit

BI Tools

Data warehousing, online analytical

processing and data mining are some of

the tools in the IT application to large scale

processing and analysis of data. These tools

are extremely useful for an Internal Audit

professional. Very effective and efficientinternal audit can be done using these BI

tools. Some of the essential details in this

regard are discussed.

Data Warehousing

Data warehouse is a repository of

subjectively selected and adapted

operational data, which can successfully

answer any ad hoc, complex, statistical

or analytical queries. Basics of data

warehousing design and management are:

Datawarehouse architectures: the

way the data are related and a rranged.

The understanding of this will enable

the IA get total grip of transaction

processing.

Datamartsanddatastores: These

are sub-sets of the data warehouse.

Since the Internal Audit requirements

are very specific and may not be as per

operational requirements, specific data

marts could be built for the purpose of

Internal Audit requirements.

Data structures and data f low:

An understanding of this by the IA

will make the audit trail easy and

evaluation of control systems will be

very efficient.

Dimensional modeling: This can be

used for audit in depth.

Benchmarking of business

performance: This is often done to

make comparison of performance

between organisations or within

divisions/units within an organisation.

Dashboards: These are final

representation of the KPI, generally in

a visually attractive form in order to

support decision making.

Decisionsupportsystems: Any othersupportive decision support reports

are also generated depending on the

requirements.

Thus BI systems help the users generate

reports and KPI as per their requirements.

However, the requirements have to be

planned properly and the relationships

between the data have to be defined

properly.

BI gaps for IA

An Internal Auditor, among other

functions, looks at transactions which are

recorded in the source systems. The data

warehouse that is created as a sub-set

of the source systems database is based

generally on the reporting requirements

of the Management and Executives. This is

where the requirements of IA have to be

taken care. In most of the data warehouses

this requirement is not taken care of and

the IA has to use his tools and techniques

from outside the system. In fact, it may

be necessary that while constructing a

data warehouse, the Internal Auditor

be consulted. The BI tools for query and

reporting or for analysis and alerting are

built with the operations in mind and

not control in view. Here again the IAs

requirements are generally not considered.

The independence and objectivity as

contemplated in the Attribute Standard

1100 as contemplated by IPPF5 can

Data Warehouse: This is another

database specifically created taking

into account the decision or reporting

requirements. For every organisation,

an exclusive data warehouse is created.

This warehouse depends upon both the

software and the user requirements.

The objective of this data warehouse

is to enable specifically required and

designed reports for the need of

users.

BI Tools: These are the slicing and dicing

tools that generate tailor-made report

and analysis. The BI tools make use of

data mining techniques and modeling

software in order to understand the

data behaviour and relationships.

WorkingofBIsystems

There are several ways to look at the

components of a BI system. The following

one is a simple step-by-step approach to

understanding how a BI system is built up

and what it does.

Data warehouse development

and administration: Based on the

requirements of the Management

reporting and the data base architecture

of the existing functional systems,

specific data warehouse is developed.

Data mining: The information

requirements dictate the way the data

are to be mined.

Data queries and report writing:

Queries are written and stored in the

data warehouse and this populates the

report structure on a periodic basis.

Dataanalyticsandsimulations: This

is another aspect of the data mining.

Predictive analysis is done based on

requirements and situation.

BI as IA ToolBy: R.S.Murali

Components of BI Architecture4


6/13


Up, Roll-up, Pivot. Data mining supports in

addressing Risk Management (2120) and

Control of the Performance Standards

(2130).

Business Intelligence as a concept and

practice has come to stay. Increasingly

organisations are using BI along with ERP

or distributed computing in order to make

their reporting efficient and effective. The IA

who constantly views the organisational data

from control and compliance perspectivesrequires making use of appropriate

technology to complement the Management

of client organisations in upholding the

functions of IA. The Continuing Professional

Development (1230) and Quality Assurance

and Improvement Programme of the

Attribute Standards (1330) can be fully

addressed by providing periodic updates

to the Internal Auditors in some of the key

areas. Hence, there is strong case today for

the IA to build skills to get the best out of BI

systems, by addressing the following:

Knowledge of database systems and

data warehousing technologies

Abil ity to manage database system

integration, implementation and testing

Abilityto managerelationaldatabases

and create complex reports

Knowledge and ability to implement

data and information policies, security

requirements and government

regulations.

Rot ation to new dim ensional

comparisons in the viewing area

All the above features help IA go into

depths of the transaction data, analyzing

them in the way required and hence from

establishing of audit trail the IA will be

able to undertake benchmark data against

periods and perform inter and intra firm

analyses.

Data MiningData mining: the extraction of predictive

information from large databases.

Data trend, connection and behavior

pattern analysis

Dataquality

Dataminingtools

Predictiveandbusinessanalytics

Descriptiveanddecisionmodels

Statisticaltechniquesandalgorithms

The data mining capability is yet to be

completely used by the IA community. The

data mining becomes extremely important

when handling large amount of data. Some

of the tools available help in unearthing

even remote relationship between variables.Some of the approaches in this regard are

the use of: On-Line Analytical Processing

(OLAP), Multidimensional/ hyper cubes,

OLAP operations: Slice, Dice, Drill Down/

Extract,clean,conformanddeliver:

These are excellent methods with which

analysis of the data can be made as per

the requirements of the IA. The IA will

be in a position to identify any wild or

non-conforming transactions.

Server management too ls to

package,backupand restore: This

gives the IA the insight into DR or BCP

routines.

Databaseserveractivitymonitoring

and performance optimization:

Complete log of access and authority

digression, intrusion, etc. can be assessed

by IA.

OLAP

On-Line Analytical Processing (OLAP) is

a category of software technology that

enables analysts, managers and executives

to gain insight into data through fast,

consistent, interactive access to a wide

variety of possible views of information

that has been transformed from raw data

to reflect the real dimensionality of the

enterprise as understood by the user.

OLAP functionality is characterized by

dynamic multi-dimensional analysis of

consolidated enterprise data supporting

end user analytical and navigational activities

including:

Calculationsandmodelingappliedacross

dimensions, through hierarchies and/or

across members

Trend analysis over sequential time

periods

Slicingsubsetsforon-screenviewing

Dri ll -down t o deepe r l ev el s o f

consolidation

Reach-throughtounderlyingdetaildata

About the Author:

R.S.Murali is the Managing Director & Principal Consultant of NCR

Consultants Limited (www.ncrcl.com). He is a qualified Chartered

Accountant, Cost Accountant and Company Secretary. He is an

alumnus of University of Manchester, UK. He is also a Certified

Management Consultant CMC by ICMCI, USA. He has over

25 years of consulting, training and research experience and has

drafted four Accounting Standards for local governments. He can

be contacted on [email protected]


7/13


from many alternatives. So once again,

we can have the single number engineersalways want its NPV but in this case, itsthe least negative NPV.

Most fixed assets and other projects havea limited useful life. All equipment has

a finite life based on both deteriorationand obsolescence. The most commondepreciation methods is straight line

depreciation based on acquisition cost lesssalvage. Straight line depreciation is basedon consumption of a fixed percentage of

the equipment cost. Often, straight linedepreciation is used for internal accountingreports of profit/loss and for calculating

NPV.

Income tax rates vary and may requireinclusion of state as well as federal taxes.

Engineers must be concerned with life

cycle costs for making important economicdecisions through engineering actions.

What goes into LCC?

LCC includes every cost that is appropriate

and appropriateness changes with eachspecific case which is tailored to fit thesituation. LCC follows a process (Fabryck

1991Appendix A) as shown in Figure 1.The steps are:

Step 1: Identify what has to be analyzedand the time period for the

project life study along with theappropriate financial criteria.

Step 2: Focus on the technical features by

6. Shareholders want to increase

stockholder wealth as the only criteria.

Management is responsible for harmonizing

these potential conflicts under the bannerof operating for the lowest long termcost of ownership. LCC can be used as a

management decision tool for harmonizingthe never ending conflicts by focusingon facts, money and time. Why should

engineers be concerned about cost detailsfor LCC? It is important to help engineersthink like MBAs and act like engineers for

profit making enterprises. Its all about themoney!

Economic calculations are well definedbut the discount rate is important (US

Government 2002). Accounting andfinance organisations set internal discountrates (which often change) to make

economic decisions easy for engineers.

Cash flows into/out of a business.

The discounting method summarizestransactions over the life of the investmentin terms of present or future dollars.

Engineering always want a simple, singlevalue, criteria for a project the answer

for LCC is called net present value (NPV).NPV is the present value of proceeds minuspresent value of outlays. Projects and

processes with the greatest NPV is usuallythe winner. Often for incremental changes

on a project or within a plant, you lackenough details to arrive at a positive NPV.Thus many improvement projects must be

selected on the least negative NPV values

Life Cycle Cost (LCC) Analysis helps in

advocating reducing life cycle costs for

equipments in wide areas within all sectors

by showing show/why reliability and

maintainability must be included in upfront

decisions for strategic and tactical issues

of achieving the lowest long term cost on

ownership. LCC concepts are resurging

presently within global organisations,

responsible MNCs with Corporate Social

Responsibility (CSR)s in place, including

worldwide Government efforts to minimize

energy costs.

Why use LCC?

LCC helps change provincial perspectives

for business issues, with emphasis onenhancing economic competitiveness, by

working for the lowest long term cost ofownership, which is not an easy answer toobtain. Consider these typical problems

and conflicts observed in most companies:

1. Project Engineering wants to minimize

capital costs as the only criteria;

2. Maintenance Engineering wants to

minimize repair hours as the onlycriteria;

3. Production wants to maximize uptimehours as the only criteria;

4. Reliability Engineering wants to avoidfailures as the only criteria;

5. Accounting wants to maximize projectnet present value as the only criteria,

and;

iterative fashion.

Step 11: Select the preferred course of

action and plan to defend the

decisions with graphics.

LCC combines acquisition and sustaining

costs. Acquisition and sustaining costs are

found by gathering the correct inputs,

building the input database, evaluating the

LCC and conducting sensitivity analysis to

identify cost drivers.

Acquisition costs have branches for the cost

tree shown in Figure 2 as a memory jogger.

Sustaining costs have branches for the tree

as shown in Figure 3 which is also a memory

jogger.

LCC requires facts driven by data and

analysis of data from arithmetical analysis

to more complicated statistical analysis.Follow guidelines for each step listed in

Figure 1 to work-out a typical engineering

problem (remember, a single right or

wrong method/solution does not exist -

many methods and routes can be used to

find LCC). If you disagree with the cost or

life data, substitute your hypothesis values

determined by local operating conditions,

local costs, and local grades of equipment.

Consider the following LCC example.

Step 1: Define the problem. A solo pump

is operating without an online spare. At

pump failure, the process shuts down andfinancial losses are incurred as each hour of

down time results in a gross margin loss of

US$4,000/hour of outage. Find an effective

LCC alternative as the plant has an estimated

10 years of remaining life and is expected to

be sold-out during this interval.

Step 2: Alternatives and acquisitions/

sustaining costs. Consider three obvious

alternatives for LCC (other alternatives

exist for solving this problem, however, the

list is pared for brevity):

1. Base case - do nothing. Continue solo

ANSI pump operations with a 100

horsepower, 1750 RPM, 250 psi, 500

Step 7: For key issues prepare breakeven

charts to simplify the details intotime and money.

Step 8: Sort the big cost items into aPareto distribution to reconsider

further study.

Step 9: Test alternatives for high cost

items such as what happens ifmaintenance cost is 10% thanplanned, etc.

Step 10: Study uncertainty/risk of errorsor/alternatives for high cost items

as a sanity check and providefeedback to the LCC studies in

way of the economic consequences

to look for alternative solutions.

Step 3: Develop the cost details by year

considering memory joggers forcost structures.

Step 4: Select the appropriate costmodel, simple discrete, simple

with some variability for repairsand replacements, complex withrandom variations, etc. required

by project complexity.

Step 5: Acquire the cost details.

Step 6: Assemble the yearly cost profiles.

A Life Cycle Cost Summary

FINAL PART

By: Jacob Joby Varghese


8/13


Of course the detection/switching device is

very important for calculating overall systemreliability and for this case the reliability isassumed to be 100%. Also for simplicity,

the reliability of the system is calculatedas if the redundant pumps are operatingin parallel. Again, cost details are listed in

(Barringer 1996).

Alternative 3: Replace Solo ANSI pump

With Solo API Pump: Use the followingdetails from plant experience - again, thecost details are listed in (Barringer 1996).

Step 6: Make cost profiles for each year ofstudy. This step will take into account the

annualized charges plus the lumped chargesat the front and rear end of the project as

shown in Table 1. Based on these alternativesin Table 1, adding the ANSI pump in parallellooks more attractive based on the NPV

at the 12% discount rate using straight

line depreciation and planning for a 38%tax rate. No revenue stream is included in

these calculations so the case with the leastnegative NPV will be the most attractivecase. Remember each company will have its

favorite discount rate, depreciation scheduleand method for making capital decisions.That means local conditions may prevail

in making decisions.

Step 7: Make break-even charts for

alternatives. Breakeven charts are usefultools for showing effects of f ixed and variable

costs. Results for the three alternatives areshown in Figure 4 for a quick grasp of howthe breakeven points compare to the base

case. In Figure 4, net present values are

gpm, 70% hydraulic efficiency, pumping

fluid with a specific gravity of 1.

2. Add a new, second ANSI pump in parallel

(literally in redundant standby) whichcan be started immediately withoutthe loss of production upon failure of

the running pump. Alternate runningof the parallel unit every other week toavoid typical failures incurred by non-

operating equipment. The capital costsfor the second pump is $8,000 plus$3,000 for check/isolation valves, plus

$2,500 for installation.

3. Remove the existing solo ANSI pump andreplace it with a new solo API pump withthe same performance as for the ANSI

model. The API pump cost $18,000 plus$3,500 for installation and the installationwill incur a four hour loss of production

for connecting the new pump.

Step 3: Prepare cost breakdown structure/

tree. Refer to Figures 2 and 3 for memoryjoggers of the cost buckets to consider forthree cases.

Alternative 1: In the do nothing case, thecost breakdown structure will incur cost in

these categories: 1) For the solo pump, theacquisition costs are sunk and acquisitioncosts need not be considered, 2) Sustaining

costs must be accumulated for labor,materials and overhead, replacement/

renewal costs + transportation, energycosts + facilities costs, support + supplymaintenance costs, operations costs,

ongoing training costs, and for the end of

life conditions disposal permits + wrecking/

disposal + remediation + asset write-off/recovery costs + miscellaneous green/clean costs will be incurred. This case is

Accountings default condition and the caseengineering usually wants to ignore.

Alternative 2: For the addition of adual ANSI pump, the cost breakdownstructure will incur acquisition costs

for program management, engineeringdesign, engineering data, facilities andconstruction costs. All of the sustaining

costs for the solo case will be incurred plussystem/equipment modification costs andengineering documentation costs.

Alternative 3: For the replacement of the

ANSI solo pump with an API solo pumpwe will incur both acquisition and sustainingcosts which will be different (but similar) to

the dual ANSI case.

Step 4: Choose analytical cost model. The

model used for this case is explained in anengineering spreadsheet. The spreadsheetmerges cost details and failure details to

prepare the NPV calculations. Failure costsare prorated into each year since the specifictime for failure, because of chance events,

is not known. The same spreadsheet willbe used with more details when statisticaluncertainty is added in a section which

follows. LCC spreadsheets are available onthe Internet (Barringer 2002).

Step 5: Gather cost estimates and costmodels. This is the complicated section where

all the details are assembled. Of course the

more thorough the collection process, the

better the LCC model. For this summary,the details have been shortened with justenough information described to show the

trends. Use of MTBFs and expected failuresare based on the exponential distributionwhich is an acceptable first-cut for costs, but

this technique is not an accurate predictor offailures for wear-out phenomena expectedfor many of these components. An improved

accuracy method uses Weibull distributionsfor failures (Abernethy 2000). Assumeall the equipment follows the exponential

distribution for reliability with constantfailure rates. Note the reciprocal of failurerate is the mean time to failure. Since failure

rates are constant, use one year time bucketsto collect the cost of failures per year as

the literal failure date is unknown. Use thefollowing assumptions based on an accountingprinciple that costs will follow activity - in this

case it will follow failure activity.

Alternative 1: Do nothing case - the

datum: Use the following details fromplant experience. See (Barringer 1996) fordetailed cost at http://www.barringer1.

com/Papers.htm: select paper #7. Costdetails are not provided here because ofspace limitations.

Alternative 2: Add redundant ANSIpump: Use the following details from plant

experience. This case results in pumpsinstalled in parallel but operated as a

standby redundant system as the redundantcomponents are not energized but areliterally standing by, waiting to be used when

failure of the operating system is detected.

Figure4:BreakevenChart

Figure 2: Acquisition Cost Tree Figure 3: Sustaining Cost Tree

Table 1


9/13


Figure 8: Pump Reliability vs Pump Curve

data must be identified.

LCC is simply a way-stop on the never ending

journey for reducing costs. LCC is clearly nota destination. LCC provides the tools to

engineer maintenance budgets, ownershipcosts, and present decision making scenariosin a financial perspective to achieve the

lowest long term cost of ownership.

engineers are the most important link indevising cost effective plants and naturally

the burden of LCC falls on their shoulders.But design engineers cannot perform aneffective analysis unless they have reasonable

failure data from operations. Thus theneed for plant and industry databases offailure characteristics. Remember, to obtain

good failure data, both failure and success

shown on the Y-axis to combine cost of

money with time and show how the effectsof expenditures and cost reductionsplay together. Of course the issue is to

choose alternatives which payback quicklyand payback big returns with favorableNPVs which for this case favour the dual

ANSI pumps.

Step 8: Pareto charts of vital few cost

contributors. The purpose of Pareto charts

is to identify the vital few cost contributors

so the details can be itemized forsensitivity analysis and ignore the trivial

many issues. Pareto rules say that 10 to

20% of the elements of a cost analysis will

identify 60% to 80% of the total cost

these high cost items are the vital few

items of concern and need to be carefully

considered. The cost elements for the

also ANSI pump are shown in Figure 5

with the high cost of lost gross margins

more than twice the cost of the next item.

Compare the absolute magnitude of the

costs with the cost elements for Figures

5, 6 and 7. When redundant ANSI Pumps

are installed, the Pareto chart looks

substantially different as shown in Figure 6

where electrical power becomes the most

significant cost item.

Step 9: Prepare sensitivity analysis of high

costs and reasons for high cost. Sensitivityanalysis allows study of key parameters onLCC. In Table 1 the analysis begins with

mean time between failures which drives

the failure rate. Since all of the componentsare in series, the failure rates for the

exponential distribution can be added toobtain an overall failure rate for the system.Figure 5 shows the key for controlling cost

is to avoid the downtime which results inlost gross margin caused by unreliability. Ifan inferior operating philosophy that all

pumps cavitate then reliability withinthe plant will be low as equipment willbe killed before it reaches its inherent life

span. Figure 8 (Barringer 2003) illustratesthe sensitivity of pump reliability to pump

curves and other well-known problems. Theshape of the reliability curve is dependentupon many pump features and operating

conditions.

Step 10: Study risks of high cost itemsand occurrences. Failure data is available

from many sources (Bloch 1994) or (Bloch

1995) to test if the assumptions made inthe analysis are valid or if unusual risks have

been taken with numbers used in the study.Consider the following failure rate valuesin Table 2 as failure rate or the reciprocal

MTBF which shows the failure data used forthe analysis is within the expected range.

Step 11: Select preferred course of actionusing LCC.The selection of a parallel/redundant strategy using ANSI pumps is the

most attractive alternative out of the threeproposed because it avoids process failure

and thus reduces the high cost of un reliability.Buy equipment which is electrical powerefficient and correctly sized with high

hydraulic efficiency to make substantial

reductions in electrical power consumptionwhich is usually a hidden cost item but clearly

identified by LCC as a vital element.

Summary

Life-cycle costs include cradle to gravecosts converted to NPV economicmodels. When failure costs are included,

the quantity of maintenance manpowerrequired can be engineered which avoidsthe use of antique rules of thumb about how

maintenance budgets are established. LCCis a method to correctly consider long-termbusiness decisions which have advantages

for profitability. LCC is not easy, but it iseffective for building a sound business case

for action.

LCC techniques provide methods to

consider trade-off ideas with visualization

techniques as described above which arehelpful for engineers. Likewise LCC analysisprovides NPV techniques of importance

for financial organisations, and LCC detailsgive both groups common ground for

communication to aid in insuring soundbusiness decisions and actions. LCC is thelaser guided missile attack on important

business problems for projects and processes.Of course it requires greater sophisticationthan attacking problems with proverbial

hammers, tongs, and brute force.Good alternatives for LCC require creative

ideas. This is the role of the engineer tosuggest and recommend cost effective

alternatives. Much lower LCC are obtainedwhen creative efforts are employed in thedesign area. Making changes downstream

in the operating plants has smaller chancesfor improvements because its employedtoo late in the improvement cycle. Design

About the Author:

Jacob Joby Varghese is currently working with Group Internal

Audit, Dubai World as Senior Technical Auditor. He is a mixed-

use Development and Commercial Specialist with over 15 years

of experience in Business feasibility, Master planning, Program

Management, Project Management, Planning and Execution of

Civil Works, Site Management and Planning. Jacob is a Civil

Engineer and a Certified Cos t Engineer (CCE). Currently he is

pursuing his MBA for Real Estate and Construction Management

from the College of Estate Management, University of Reading,

London and CIA.

Figure 5: Pareto Cost Chart For Solo ANSI Pump

Figure 6: Pareto Cost Chart For Parallel / Redundant Pumps

Figure 7: Pareto Cost Chart For Solo API Pump

Table 2: Failure Data


10/13

2008 Deloitte & Touche (M.E.). All rights reserved.

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and i ts networkof member firms, each of which is a legally separate and independent entity. Please see

www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche

Tohmatsu and its member firms.

In a globalized world, competition is everything. At Deloitte, we makeit our business to study and understand the competitive environment.With 1,700 people in over 25 locations across the Middle East, andaccess to the deep intellectual capital of 165,000 people worldwide,Deloitte is your local resource to connect you to a global network ofexpertise and innovation.

Working in partnership with you, our people design solutions thatbring tangible returns and sustainable growth for your business. Fromauditing to tax, and consulting to financial advisory services, ourmember firms provide a broader range of multidisciplinary servicesthan any of our competitors. For world-class thinking with an edge,you know where to come.

Visit us at www.deloitte.com

Eighty Yearsin the Middle East

With the changingglobal sceneStay in the front row

Emaar Business Park

Sheikh Zayed Road

Building 1, 4th Floor, Suite 4

PO Box 282056 Dubai, UAE

Tel: +971 (0)4 369 8999

Fax: +971 (0)4 369 8998

role of Audit in altering, fixing, monitoring

and bringing transparency about controlsand risks in organisations etc.

Involvement is sought from the entire UAEand not just from select few Emirates. It is

also proposed to seek participation from theregional chapters in this pioneering event.We would also welcome suggestions from

the IIA headquarters that will add value tothe UAE Audit Week.

The date is set, the objectives are clear.Equally clear is the fact that it is a labourthat will assume impressive shape only with

the help of volunteers. Working together,overcoming challenges as one cohesive unitis bound to make the UAE Audit Week a

period of learning and sharing.

maximum reach for the campaign and to

ensure all required logistics are in place.Volunteers can add muscle to the event atmultiple levels. This could involve preparing

the marketing material, helping with thepublicity, visiting interested outfits, meeting

potential sponsors, presenting emergingaudit initiatives, in short any tiny step thatwill propel the week long mammoth event

forward.

As part of the UAE Audit Week severalevents are on the anvil. These includeconducting campaigns at major universitiesand colleges in the UAE that will bring about

an ameliorated awareness about the auditprofession; signing MOUs with prominentorganisations to mark the event and also

awareness sessions on Risk and its impact,

UAE-IAA proposes to hold the UAE Audit

Week from 11-18 February 2011, with theobjective of raising awareness about Auditamongst large business entities, both in the

public and private sectors.

Since an event of this size and scale will

require a large number of volunteers andcoordinated effort from the audit fraternity,through this forum I request audit

professionals to come forward to assumeroles and responsibilities that will make the

exercise comprehensively beneficial to eachone of us. Please permit me to elaboratefurther

A good starting point to flag off preparationswould be to identify key business sectors for

the campaign. Some of the broadly identifiedsectors are: education, aviation, financial, oil& gas, transport, real estate, construction,

communication, hospitality, retail and healthsectors, external auditors & consulting firms,regulatory bodies, professional bodies, the

World Gold Council and volunteers fromthe Conferences and Exhibitions sector.

Once done, we need to identify the ChiefAudit Executives (CAE) or other key

contacts to support this initiative. This willbe followed by a brain storming session with

the CAEs and other volunteers to discussand deliberate upon how to make the eventmore meaningful. A corollary to this wouldbe defining roles, allocating responsibilities

and firming up deadlines that will mark therolling out of the campaign. Amidst suchseamless voluntary work, a core working

group will evolve that will run and monitorthe campaign with a keen eye on the agreedmilestones.

With key decisions made on the sectorsto be covered, with leaders identified for

each sector and a working group formedfor each sector, it would be time to roll

out the marketing material, debate onpossible communication channels to ensure

UAE Audit Week

By: Raza Abdulla

About the Author:

Raza Abdulla has been working with the Emirates Group Internal

Audit for 28 years as Vice President - Internal Audit. He has been

the past chairman for the IAAIA, current EXCOM member, and in

his professional capacity as the founder member and past President

of the IIA- UAE Chapter, contributes to the ongoing research and

development of the internal auditing profession in the region.


11/13


reflects improved investor sentiment. Weare optimistic that this will increase the

demand for internal auditors.

Ultimately the key issue within the internal

audit market has not changed. Internalauditing remains underdeveloped byinternational standards and there will

eventually be immense pressure to improvecorporate governance as the regionintegrates with the global economy.

It is likely to be only a matter of time before

this issue is comprehensively addressed andit is certainly easier to make the type ofinvestment necessary when economies, as

now, are growing. We will be surprised anddisappointed if the development of internalauditing does not return in the near future

to the pattern that was established prior tothe financial crisis.

For further insight on the GCC internal auditrecruitment market please view the BarclaySimpson Interim Middle East Market Report

2010 at http://www.barclaysimpson.ae/middle-east-interim-market-report-2010.

this has remained good with a local pool o finternal auditors supplemented with those

seeking to move into the region. Accordingto a recent survey by HSBC, the GCC isstill the most popular region in the world

for expatriate workers. They are attractedby both the financial rewards and potentialcareer development prospects.

Latest economic forecasts, given stableoil prices, are for economic growth in the

GCC to exceed 5% in 2011. This is stillbelow pre-crisis levels. Without doubt a

lack of transparency and Western levelsof governance are hindering investmentand decision making. However, as the

fallout from such troubled groups as DubaiWorld is resolved, confidence is emerging.The recent return of Dubai to the credit

markets is further boosting confidence and

heavily in the recruitment of corporategovernance staff. Substantial investment is

being made right across internal audit, risk,compliance, legal and information securityfunctions.

Similarly within the GCC, at the start of2010, there was an upsurge in the number

of vacancies for Heads of Audit and othersenior internal audit management positions.The common remit was either to establish

an internal audit function or to develop astronger function than already existed. We

perceived this as a reaction to the weak riskmanagement and systems of control thatthe credit crisis and subsequent recession

had exposed. Whilst many of these roleswere in banking, it included other sectorssuch as real estate, media, industrial and

state owned groups.

We understood this to imply that a broadly

based commitment to progressive internalauditing was underway. We are thereforesurprised to report that this initial surge

of recruitment activity petered out andfew of the vacancies for senior roles weresuccessfully recruited. Decision makers have

seemingly become risk averse and initialintentions to reform have been outweighed

by uncertainty and cost containmentmeasures.

The exceptions are Qatar and Abu Dhabi,reflecting the relative strength of theireconomies compared to the rest of the

GCC. Even here, recruitment has been ona replacement basis rather than providingany sign that internal audit departments are

being expanded. The Big 4 and internal auditconsultancy firms have benefited from thisand have gained audit and risk assurance

assignments at the expense of the expansionof in-house internal audit departments. Notsurprisingly there has been demand from

the consultancies for experienced internalauditors.

In terms of the availability of candidates,

a balance of employers that are intending

to recruit.

However, for all the supposedly sophisticated

regulatory regimes and all the sums invested

in corporate governance and internal

auditing, the credit crisis still happened. This

has to be seen as a failure. Governments and

regulators around the world have responded

to this failure and there have been any number

of initiatives. Basel III, the overhaul of bank

capital and liquidity standards, is perhaps

the most high profile and far reaching of

the co-ordinated responses. Incrementally,

regulators are looking to make the financial

system less risky.

It is equally clear, perhaps as a result of

regulatory pressure, that since the start of

2010 the financial sector in other regions

of the world have responded by investing

they most often have the implicit support

of highly solvent sovereign governments,

markets are better able to cope with losses

rather than uncertainty. In this respect,

the lack of adequately developed systems

of corporate governance and a legal

infrastructure is not helping the region.

Recruitment is a form of investment.

Companies invest and recruit when they feel

confident. Given that effective corporate

governance would improve confidence, it

is perhaps easy to make a case for building

on the investment in governance that was

apparent before the financial crisis. The

sovereign states that make up the GCC

have the opportunity to do so. Economic

growth is forecast to accelerate further in

2011 and survey evidence is emerging that

suggests general recruitment patterns are

in the process of improving. There is now

The background to the financial crisis was

in our view reasonably easy to explain. It

was caused by cheap money and too much

debt. The consequence was increased asset

prices which supported more debt, the

real risks of which were hidden by financial

complexity and, in the case of the GCC,

opaque ownership structures.

If anyone thought the GCC might be

immune when the financial crisis struck,

Dubais overheated property market

demonstrated it was not. However, unlike

Europe, where private debt default has

been replaced by the threat of sovereign

debt default, there is little such concern

within the GCC. It is therefore surprising,

on the back of both expansionary fiscal

policies and anticipated economic growth

of 4% in 2010, how lacklustre the recovery

feels. Until recently it was clear that outside

of the public sector, unlike other regions of

the world, the recovery had yet to reachthe corporate governance recruitment

market.

Perhaps the relative transparency of

Western economies is the difference.

Although the credit related losses in Europe

and the United States were greater, they

were also more readily identified and

quantified. Identifying and reporting losses

provide certainty and allows informed

investment decisions to be made. Within

the GCC, uncertainty comes from lower

levels of transparency and questions about

the governance of state owned entities and

family owned companies which form the

major part of the regions economy. Whilst

Barclay Simpson Internal Audit

Recruitment Review

By: Tim Sandwell

About the Author:

Tim Sandwell is a Director of Barclay Simpson and leads their

Middle East operation. Barclay Simpson is a specialist corporate

governance recruitment consultancy that covers internal audit,

compliance, risk management, IT security and legal professionals.

They have offices in Dubai, London and Hong Kong.


12/13

20 October 2010

By: Vishal Thakkar

About the Author:

Vishal Thakkar is a qualified Chartered

Accountant and Certified Internal

Auditor. He is currently working with

Group Internal Audit department of

Petrofac and can be contacted at

[email protected]

Knowledge UpdateNew on the Horizon: Leases for

Real Estate companiesIn August 2010 the International Accounting Standards Board and

the US Financial Accounting Standards Board published a joint

exposure draft on leases, which will have significant implications

on lease accounting in the real estate sector if implemented in its

current form. A significant overhaul in lease accounting standards

has been widely anticipated for some time now. In fact it is over 10

years since the core proposals in this exposure draft (ED or Leases

ED) were first made.

As expected, the proposed standard, if adopted in its current form,

will make significant changes to the current approach to accounting

for leases. In summary, it removes the differences between

operating and finance leases and brings all lease obligations onto

the lessees statement of financial position as a financial liability. For

real estate occupiers this is significant. In the past, the majority of

property leases were classified as operating leases and so property

rentals were treated as an operating expense in the lessees financial

statements. Under these proposals lessees would be obliged to

bring the net present value of their future lease obligations onto

the statement of financial position.

http://www.kpmg.com/Global/en/IssuesAndInsights/

Art i c lesPub l i c a t ions/Pages/NOTH-Leases - for -Rea l -

EstateCompanies.aspx

Arab Media Outlook: Collaborating

for GrowthThis groundbreaking report, released by the Dubai Press Club in

conjunction with PricewaterhouseCoopers, reviews the current

state of Arab media across twelve Arabic-speaking countries.

Supported by Dubai Media City, Dubai Studio City and InternationalMedia Production Zone, the Arab Outlook focuses on the impact

of the global media trends on the Arab Media and predicts the

course of events for many aspects of the industry over the next

five years.

Developments in digital media and the emergence of broadband

access and TV delivered directly to mobile devices present exciting

growth opportunities for media companies across the Arabic-

speaking world. Yet in order to benefit from these opportunities,

certain factors must be addressed: the relatively limited availability

of affordable broadband access across much of the region; and

the lack of reliable audience and readership figures: Conclusions

outlined in this report enable us to take an accurate view of the

Arab media industry both in quantitative and qualitative terms.

http://www.pwc.com/m1/en/publications/Arab_media_

outlook.jhtml

Guide to Using International

Standards on Auditing in the

Audits of Small and Medium-Sized

EntitiesThe second edition of this Guide was commissioned by the

IFAC Small and Medium Practices (SMP) Committee to assist

practitioners on the audit of small and medium-sized entities

(SMEs), and to promote consistent application of the International

Standards on Auditing (ISAs). While developed by the Canadian

Institute of Chartered Accountants (the CICA), the Guide is the

full responsibility of the IFAC SMP Committee. The International

Auditing and Assurance Standards Board (IAASB) staff and a global

advisory panel, with members drawn from a broad cross-section

of IFAC member bodies, have assisted in reviewing the Guide. The

Guide provides non-authoritative guidance on applying ISAs. It is

not to be used as a substitute for reading the ISAs, but rather

as a supplement intended to help practitioners understand and

consistently implement these standards on SME audits. The Guide

does not address all aspects of ISAs and should not be used for

the purposes of determining or demonstrating compliance with

the ISAs.

The Guide is intended to explain and illustrate so as to develop a

deeper understanding of an audit conducted in compliance with

ISAs. It offers a practical how-to audit approach that practitioners

may use when undertaking a risk-based audit of an SME. Ultimately

it should help practitioners conduct high-quality, cost-effective SME

audits, and in so doing, help them better serve the public interest. It

is anticipated that the Guide will be used by member bodies, audit

firms and others, as a basis for educating and training professional

accountants and students. IFAC member bodies and firms may use

the Guide, either as it is or tailored to suit their own needs and jurisdiction. It provides a basis from which member bodies and

others can develop derivative products such as training materials,

audit software, checklists and forms.

http://web.ifac.org/media/publications/5/guide-to-using-

internationa-1/guide-to-using-internationa-1.pdf

The new IIA International Standards or the Proessional Practice o Internal Auditing (Standards) took eect in January,

2009. These Standards require assessments o IT governance, use o data analysis techniques, assessments o raud risk

management and creation o records retention policy. Do you know how the Standards aect your organization? Are you

using them as an opportunity to create value? At Protiviti, we recently held several online seminars or more than 2,000

internal audit leaders to help them understand the revisions. We are helping our clients use the Standards to make their

internal audit unctions more eective and efcient. Could you be doing the same? Ask how atprotiviti.com today or

contact Adnan Zaidi, Managing Director on + 971 50 319 6564 or email [email protected].

Ask how Protiviti is helping clients use thenew IIA standards to create organizational value.

2010 Protiviti Inc. An Equal Opportunity Employer. Protiviti is not licensed or registered as a public accounting frm and does not issue opinions on fnancial statementsor oer attestation services. PRO-1109


13/13

UAE Training Calendarfor November / December 2010 & January 2011

TRAINING

Continuous Auditing Methodology

Top 5 Mistakes Audit Departments Make

Communication - The Cornerstone of Audit

Building Performance Excellence

How to Plan Workshop

Audit Challenges Routable

Relationship Development

Cyber Forensic- Forensic Auditing

Hunt for Fraud:Prevention and

Detection Techniques

Information Risks Management

Implementing Control Self Assessment

Successful Application & design

Demonstration of a Continuous Control

Monitoring using ACL

Hands on Case Study using Hands on Desk Top

Introduction to Construction Audit

Construction Audit Advanced Technique

FRAUD AUDITING/ FORENSICS

Investigative Interviewing- Corp. Internal

Investigation

CIA Review Course Paper 1




ALL PAPERS

DATE

Nov. 7-8

Nov. 9-11

Nov. 21 - 22

Nov. 23- 25

End of

November

or beginning

December

Dec. 6 7

Dec. 8 9

Dec. 12 - 13

Jan 2011

PROPOSED FACILITATOR

Robert Mainardi

Albert Marcela, Jr.

Gretel de Paepe

Denise Cicchella

Larry Rosipajla

Phoenix Financial

Documents

BI as Internal Audit Tool