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    Internal Audit.....

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    I-am Kum
    This document provides an overview of internal auditing. It defines internal auditing as an independent and objective assurance function that aims to add value and improve an organization's operations. The document discusses the importance of internal controls and provides examples of common controls. It describes the roles and responsibilities of internal auditors in evaluating risk management and control processes. The summary also differentiates internal auditing from external auditing. Key points covered include developing audit plans and reports, evaluating compliance, and making recommendations to strengthen controls and improve operations.

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    Internal Audit.....

    Uploaded by

    I-am Kum
    215 views31 pages
    This document provides an overview of internal auditing. It defines internal auditing as an independent and objective assurance function that aims to add value and improve an organization's operations. The document discusses the importance of internal controls and provides examples of common controls. It describes the roles and responsibilities of internal auditors in evaluating risk management and control processes. The summary also differentiates internal auditing from external auditing. Key points covered include developing audit plans and reports, evaluating compliance, and making recommendations to strengthen controls and improve operations.

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    This document provides an overview of internal auditing. It defines internal auditing as an independent and objective assurance function that aims to add value and improve an organization's operations. The document discusses the importance of internal controls and provides examples of common controls. It describes the roles and responsibilities of internal auditors in evaluating risk management and control processes. The summary also differentiates internal auditing from external auditing. Key points covered include developing audit plans and reports, evaluating compliance, and making recommendations to strengthen controls and improve operations.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    215 views31 pages

    Internal Audit.....

    Uploaded by

    I-am Kum
    This document provides an overview of internal auditing. It defines internal auditing as an independent and objective assurance function that aims to add value and improve an organization's operations. The document discusses the importance of internal controls and provides examples of common controls. It describes the roles and responsibilities of internal auditors in evaluating risk management and control processes. The summary also differentiates internal auditing from external auditing. Key points covered include developing audit plans and reports, evaluating compliance, and making recommendations to strengthen controls and improve operations.

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    INTERNAL

    AUDIT

    Introduction
    Recent

    events including global financial crises have


    emphasised need for internal auditing within corporate
    governance structures

    Internal

    audit function is now mandatory by most stock


    exchanges

    Donors

    increasingly demand improved accountability


    & financial transparency in development projects

    Furthermore,

    internal audit is considered good


    practice & advisable as part of underlying control
    framework & financial management capacity of a project,
    particularly if complex &/ or decentralised

    Definition
    Internal

    auditing

    is

    an

    independent,

    objective assurance and consulting activity


    designed to
    organization's

    add value

    and improve

    operations.

    It

    helps

    an
    an

    organisation accomplish its objectives by


    bringing a systematic, disciplined approach
    to evaluate and improve the effectiveness of
    risk management, control, and governance
    processes.
    The Institute of Internal Auditors

    IA Code of Ethics
    Principles
    Internal auditors are expected to apply & uphold the following
    principles:

    Integrity

    Objectivit
    y

    The
    integrity
    of
    internal
    auditors
    establishes trust & so provides the basis
    for reliance on their judgment
    Internal auditors exhibit the highest
    professional objectivity in gathering,
    evaluating
    &
    communicating
    information. Internal auditors make a
    balanced assessment of all relevant
    circumstances & are not unduly
    influenced by their own interests or
    others in forming judgments
    4

    Confidenti
    ality

    Compete
    ncy

    Internal auditors respect the value


    and ownership of information they
    receive
    &
    do
    not
    disclose
    information without appropriate
    authority unless there is a legal or
    professional obligation to do so

    Internal auditors apply knowledge, skills, & experience


    needed

    What is Internal Audit?


    Internal Audit is a professional activity which helps organisations to
    achieve their stated objectives by:

    Analyzing key processes, procedures & operations

    Identifying key controls in each such operation, procedure &


    process
    Evaluating the adequacy of these controls

    Testing compliance of sample transactions against these controls

    Reporting results of the evaluation of controls and compliance


    testing of transactions

    Recommending stronger controls wherever necessary

    Suggesting methods to improve compliance with key controls

    Follow up of action taken on recommendations made in previous


    reports
    6

    What are Internal Controls?


    Internal Controls are important checks instituted by management to
    have reasonable assurance that:

    Operations are carried out in an efficient & effective


    manner

    Transactions are recorded accurately & completely

    Assets are properly recorded & safeguarded

    Laws are complied with

    Reliable reports are generated

    Some examples of Internal Control


    Budgetary Control
    Budgetary Control
    Fixed Assets Register
    Fixed Assets Register
    Bank & Special Account Reconciliations
    Bank & Special Account Reconciliations
    Reconciliation of Financial & Physical M & E Reports
    Reconciliation of Financial & Physical M & E Reports

    How are Internal Audit & External Audit different?


    Internal audit is focused at internal management support and
    improving systems, procedures and processes

    External audit (EA): normally statutory requirement, unlike internal


    audit (IA)

    EA reports are addressed to stakeholders: IA reports are addressed


    to Management

    EA reports express an opinion on the financial statements prepared


    by the entity for a specified period: IA reports evaluate and check
    compliance against key internal controls

    EA reports are usually public documents which are available to all


    stakeholders. IA reports are for use only by Management

    EA reports do not make recommendations, although may have a


    Management Letter: IA reports are incomplete without

    EA is basically a review of financial statements for compliance: IA


    seeks to ensure value for money to Management
    9

    Benefits of IA

    External audit checks overall compliance


    controls related to financial transactions.

    Supervision Missions conduct only spot checks.

    Internal audit is inherent in government structures in most


    developing countries.

    Sample IA Terms of Reference enclosed

    IA has a key role in Risk management of IFAD Projects

    to

    internal

    10

    Internal Audit (IA) Mandate


    Compliance & Advisory
    roles
    What does it do?

    Primary role in improving internal control, accuracy,


    reliability & integrity of information including financial &
    operational reporting

    Monitoring & evaluation


    management processes

    Role in corporate oversight, safeguarding of assets,


    economical & efficient use of resources, compliance with
    laws & regulations, deterring fraud

    of

    effectiveness

    of

    risk

    What does it not do?

    Perform management activities/ responsibilities (these


    include establishing internal controls)
    11

    Internal Control Practices


    How?
    Internal control is a process. It's a means to an
    end, not an end in itself
    Internal control is effected by people as a team,
    not by internal auditor. It's not merely policy
    manuals & forms, but people at every level of an
    organization
    Internal control can be expected to provide only
    reasonable assurance, not absolute assurance,
    to an entity's management and governing bodies/
    committees
    Uses systematic methodology for analysing
    business processes, procedures & activities
    The cost of IA should not exceed expected
    benefits to be derived
    12

    Role in Internal Control


    1. Compliance audit: review of financial & operating
    controls & transactions for conformity with laws,
    regulations & procedures, e.g.,

    .
    .
    .
    .
    .
    .

    Access to IT system appropriate to users role


    Segregation of duties in high risk areas
    Balancing & reconciliation between systems
    Systems back up & recovery
    Physical safeguard & access restriction controls
    Reconciliations, comparison budget of actual

    2. Operational audit: review of various functions within


    project to evaluate efficiency, effectiveness, & economy

    13

    IA Role in Corporate Oversight

    Four pillars internal audit, executive management, external


    audit, & Board of directors/ steering committee

    Combination of processes & organisational structures


    implemented by management to inform, direct, manage and
    monitor the projects resources, strategies & policies towards the
    achievement of its objectives

    Public sector governance Principles


    - transparency, integrity, accountability
    May include review of sufficiency of human resources,
    training needs, policies, etc.

    14

    Nature of Internal Audit Activity

    Establish scope & activities for audit to Management

    Identify control procedures used to ensure each key risk is


    properly controlled & monitored

    Develop & execute risk based sampling & testing approach


    to determine whether most important controls are operating as
    intended (NB: input from Management required e.g. 100%
    sampling of WA review)

    Report issues/make recommendations/negotiate action


    plans with Management to address issues

    Follow up on reported findings periodically

    Describe key risks facing the business activities within scope of


    audit

    15

    Contents of Audit Plan

    Updated annually

    Risk based audit plan developed with input from project


    staff including Management

    Summary of key goals, risks & corresponding major audits, to


    illustrate alignment

    Based on risk assessment & available resources

    Appendix materials, such as planning approach, assumptions &


    brief descriptions of all planned audits & related prioritization

    Approved by management/ appropriate oversight Committee

    16

    Contents of Audit Report

    Observations

    Narration/ description

    Remedial action

    Consequences/ fall out

    Recommendation for improvement (prioritized


    between high and normal)

    Response (action plan) who, when and how

    17

    IAs Proactive Role

    Identify Risks
    Find Better Ways and Best Practices
    Partner With Management to Find Solutions
    Prevent Problems
    Provide training
    Respond to policy & technical accounting questions
    Offer suggestions for improvement
    Advisory role

    18

    The Audit Schedule


    Prepare an audit schedule. Each area
    must be audited at least one a year,
    but for an effective program plan on
    auditing each area at least twice.

    Audit Steps
    Internal audit steps:
    Create audit schedule
    Complete audit plan
    Hold opening meeting
    Conduct audit
    Document Findings
    Prepare audit report
    Hold closing meeting
    Prepare audit file
    Follow up

    Performing the Audit

    After the opening meeting you will


    start your audit.

    Using your checklists and procedures as


    references, go out to observe the process
    and talk to people in the department
    You are looking for evidence that the
    Company Safety Management System is
    working effectively
    An effective audit will depend on your ability
    to put people at ease and encourage open
    honest communication

    Key Auditor Attributes

    Communication skills
    Tactful
    Ability to listen
    Reword questions when needed
    Use local terminology

    Objective
    Flexible
    Persistent
    Curious

    Techniques

    The auditee may be stressed


    Smile, relax
    Point out good things that you see
    Summarize with Everything looks
    good here when you can
    As the auditor, you are creating the
    audit culture for your organization

    Techniques

    Use open ended questions, they


    provide more information. Ask
    What
    Where
    Why
    Who
    When

    Ask for clarification or more


    information if you do not understand.

    Techniques

    Keep people informed of what you


    are finding
    Point out nonconformances as you go
    Make sure the auditee understands
    what you see as the nonconformance
    There should not be surprises at the
    closing meeting when you present
    your findings

    Performing the Audit


    As an auditor you will:
    Check documents and records
    Ask questions
    Observe processes and compare them
    with documented procedures and work
    instructions
    Investigate any differences
    Follow audit trails, be curious
    Take good notes

    Performing the Audit


    Throughout the audit, you will take
    detailed notes on what you find.
    Be specific on what is reviewed and what is
    found
    The information you write down will be used to
    identify nonconformance and to assist the
    department in finding and understanding what
    you observed

    Documenting the Audit


    Once you complete your audit, you will

    prepare an audit report.


    The report will also include:

    General information
    Documents reviewed
    Persons interviewed
    General summary and assessment of

    how the system is performing

    Documenting the Audit


    When
    your
    documentation
    is
    complete you will be ready to hold
    your closing meeting. The lead
    auditor will lead the meeting.
    Thank the group for their cooperation
    Remind them that this is an evaluation
    of the processes not the people

    The Closing Meeting


    Summarize the findings
    Highlight areas that are working well
    Review each of the nonconformances, allow
    questions and discuss the finding to make sure that
    the group understands the non conformances
    Discuss any corrective actions that you followed up
    on that were not found to be effective
    Have the group sign the audit report as a record of
    attendance
    Give a copy of the table of nonconformances to the
    area management

    The Audit File


    Final audit file includes:
    Audit plan
    Audit checklists
    Audit report

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