9: Internal audit

Question 1

What is the reason for an internal audit vs an External audit

Answer 1

Internal audit:
- Helps directors safeguard assets of company
- Review efficiency and effectiveness of the operations of company
- Appraise the adequacy of internal controls
- Appraise compliance with laws & regulations

External audit
- Conduct a reasonable assurance engagement
- Give an opinion on financial statements

Question 2

Who do internal vs external auditors report to

Answer 2

Internal
- Those charged with governance, best= audit committee, worst = finance director

External:
- The shareholders of the company via audit report
- The board (audit committee) via the management letter

Question 3

What does the work relate to for an internal vs external auditor

Answer 3

Internal:
- Internal controls
- Financial reporting issues
- Review of efficiecny
- Provide assistance to external auditor doing TOC and substansive testing

External:
- Financial statements of the company

Question 4

What is the relationship w company for internal v extenal

Answer 4

Internal - employees so objectivity could be an issue, but can be outsourced
External - must always be independent

Question 5

What is the internal audit function?

Answer 5

An appraisal activity established or provided as a service to the entity. E.g. examining, evaluating, and monitoring adequacy/effectiveness of I/C.

Question 6

Give 4 functions of internal audit function (6)

Answer 6

1. Examining financial and operating information - reveiwing processes for recording accounting transactions.
2. Review of compliance with laws/regulations and external requirements (UK Corporate governance code.
3. Monitoring I/C - Test I/C on a periodic basis
4. Review economy, efficiency/effectiveness of operations - review procurement function, value for money.
5. Evaluating signficant exposures to risk and recommending where improvements can be made - departmental, risk evaluation
6. Special investigations e.g. into suspected fraud.

Question 7

What can internal auditors not get involved with and why?

Answer 7

• Identifying risks re operational matters
• Developing/designing/implementing controls
• Authorisation

Effects independence in the business