Chapter 9 - Internal Audit Flashcards
What is internal audit?
an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations
An internal audit department can be costly to set up therefore the need for one pay depend on what?
- size/no. of employees
- complexity of business
- costs of poor internal controls
- attitude of management
What are the main differences between internal and external auditors?
- objective - what are they trying to achieve
- who they are appointed by and report to
- what the work involves
- what happens to their reports
- their relationship with the company
What is the objective of an external audit?
express an opinion on the truth and fairness of the FS in a written report
What is the objective of an internal audit?
Improve the company’s operations by reviewing the efficiency and effectiveness of internal controls
who do external auditors report to?
to shareholders
who do internal auditors report to?
report to management or those charged with governance
what is the availability of an external auditor report?
publicly available
what is the availability of an internal auditor report?
not publicly available. usually only seen by management or those charged with governance
what is the scope of work with an internal audit?
Wide in scope and dependent on management’s requirements
what is the scope of work with an external audit?
verifying the truth and fairness of the FS
who appoints and removes external auditors?
the shareholders
who appoints and removes internal auditors?
those charged with governance - the audit committee if there is one
what is the relationship between the external auditors and the company?
must be independent of the company
what is the relationship between the internal auditors and the company?
may be employees
What are the different internal audit assignments?
- value for money (3 E’s)
- operational audit
- Effectiveness of controls
- fraud investigation
- compliance with laws and regulations
- Audit of IT systems
- corporate governance
- risk identification
- financial audit
What are the three things the internal audit will consider with IT systems?
- the company is getting value for money
- the procurement process for the IT system was effective
- the ongoing management of the system is adequate and appropriate
The financial audit will ensure mechanisms are in place for the early identification of financial risk such as what?
- adverse currency fluctuations
- adverse interest rate fluctuations
- cost price inflation
What does a good internal audit function need to be?
- well staffed, with competent people
- independent from any operating responsibilities/relationships
- appointed by an reporting to the audit committee
- able to access all areas of the business
What are some advantages of of an outsourced internal audit function?
- fewer independence issues
- access to a wide pool of people
- access to modern audit methodologies
- potentially cheaper
- no staff management issues
What are some disadvantages of of an outsourced internal audit function?
- lack of business knowledge
- potential self review and self interest threats
- potentially costly
- hard to bring back in house
- loss of control for client
Does the internal audit report have formal reporting structure?
no
What will a typical internal audit report include?
- Terms of reference
- executive summary
- body of the report
- appendix
What are the terms of reference?
the requirements of the assignment
