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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.
10.Audit Report 17
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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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