10 intaud
- 1. WHAT IS INTERNAL AUDIT? IIA DEFINITION “Internal auditing is an independent appraisal activity established within an organisation as a service to the organisation. It is a control which functions by examining and evaluating the adequacy and effectiveness of other controls.” - IIA Statement of Responsibilities
- 2. SAS 500 (ISA 610) CONSIDERING THE WORK OF INTERNAL AUDIT Definition. “An appraisal or monitoring activity established by management and the directors for the review of the accounting and internal control systems as a service to the entity. It functions by,amongst other things,examining,evaluating and reporting to management and the directors on the adequacy and effectiveness of components of the accounting and internal control systems” dropped “independent” added “accounting” to IIA definition.
- 3. FUNCTIONS OF INTERNAL AUDIT Review and report upon: Control environment as a whole The process by which risks are identified, analysed and managed Controls over key processes / operational and functional The reliability and integrity of corporate management info The safeguarding of assets Compliance with relevant legislation
- 4. DIFFERENCES INTERNAL / EXTERNAL AUDITORS Internal External Scope – determined Scope – determined by management by statute Approach – ensure Approach – opinion all systems efficient on financial provide accurate statements management info Responsibility –to Responsibility - to management shareholders
- 5. ASSESSMENT OF INTERNAL AUDIT ISA 610 Factors to consider: Organisational Status – reporting line/ no operating responsibility? etc Scope – terms of reference Due professional care - work planned, reviewed, working papers etc Technical competence – previous experience, quality of audit reports, qualifications etc.
- 6. INTERNAL AUDIT ROLE – CORPORATE GOVERNANCE Accountability & Audit Reviewing internal control and monitoring Risk -assist in identifying risks and developing models to prioritize and manage them Organisational control – review structure of organisation – cost/benefits of change
- 7. RISK MANAGEMENT – ROLE OF INTERNAL AUDIT Types of Risk: Business e.g competition Financial e.g liquidity Compliance e.g environmental regulations Operational e.g poor service Need to: Identify- method/frequency? Assess – High /Low etc Deal with- accept,avoid etc Monitor
- 8. RISK MANAGEMENT – ROLE OF INTERNAL AUDIT System of Internal Control requires proper risk management and organisational control. Internal audit assist by: Objective assurance on adequacy of RM/control Improve identification / management of risks Strengthening control framework
- 9. OUTSOURCING INTERNAL AUDIT Benefits Disadvantages
- 10. SAS 480 (ISA 402) SERVICE ORGANISATIONS Main Proposals Planning – are outsourced activities relevant? Document contractual terms Effect on IR,CR and DR Evidence – review records held by client / monitoring procedures Relying on reports by service organisations auditors – Design of system or effectiveness too? If insufficient – qualify re scope
- 11. EXPERTS OF USE TO AUDITORS Surveyors – property valuation Geologists/ Chemists – stock or oil / gas reserves Solicitors – pending litigation Actuaries – pension fund valuations
- 12. ISA 620 USING THE WORK OF AN EXPERT Need for expert depends on: Materiality of item Risk of misstatement Quality/quantity of other evidence Scope and assessment of work Assess competence e.g. qualifications Scope agreed – objectives,info,report Examine assumptions and methods used Report – compatible with other evidence,
- 13. FACTORS TO CONSIDER RE EXTENT OF RELIANCE ON INTERNAL AUDIT Organisational status of internal audit Scope of internal audit function Technical competence Materiality /Risk of areas involved Level of judgement required Sufficiency of complementary evidence Specialist skills of internal audit Due professional care level of planning /supervision of internal audit work review working papers review previous audit reports
- 14. INTERNAL AUDIT & CORPORATE GOVERNANCE COMBINED CODE Going Concern Internal Control Directors Remuneration TURNBULL Internal Control Review effectiveness of internal control Review regular reports on internal control Risks Identify Control – training, avoidance measures Monitor
- 15. EXTERNAL ASSISTANCE TO MANAGEMENT Management letter Offer other services e.g tax,consultancy Wider expertise – other companies in same industry May adopt business risk approach that can assist management with corporate governance responsibilities.
- 16. INTERNAL AUDIT – USEFUL TO MANAGEMENT Internal focus on risks / controls Assist management with corporate governance responsibilities May accept greater responsibility than external re fraud detection VFM / operational audits assist in improving efficiency Internal audit reports more timely than external