Audit Practice II - Week 1 Overview

Audit Practice and Procedures II - Week One

• Audit Function; History, Importance, and Dynamics is the topic of week one
• The Auditor General's Department was first established in 1829, but the independent office wasn't established until 1851.
• The current Auditor General is Pamela Monroe Ellis (FCCA, FCA, CISA, 2008-Present).
• There were twelve Auditor Generals prior to Pamela Monroe Ellis
• The Auditor General's duties and responsibilities are outlined in the Jamaican Constitution and the Financial Administration and Audit Act.
• The Auditor General assesses the effectiveness of financial management systems and compliance with financial policies and guidelines.
• Section 25(1) specifies the Auditor General's functions in relation to accounts, supervision of expenditure, and other functions.
• The FAA Act stipulates the Minister of Finance presents a Fiscal Policy Paper (FPP) with macroeconomics, fiscal responsibility, and fiscal management strategy to Parliament.
• The Auditor General examines FPP components and reports to the Houses of Parliament within two weeks of the February presentation.
• The report covers whether public bodies in the previous fiscal year formed part of the specified public sector, the validity of justifications for fiscal outcome deviations, and compliance with prudent financial principles and commercial nature of public bodies.
• Section 20-24 of the FAA Act allows the Auditor General to recommend surcharges for failures.
• Surcharges can be applied in cases of non-collection of dues owing, improper payments, or loss/destruction of governmental property.
• Auditing is the accumulation and evaluation of evidence to determine correspondence between information and established criteria, done by a competent individual.
• The word "audit" originates from the Latin word "audire" meaning "to hear."
• Audit is a social phenomenon, wholly utilitarian, evolved due to need for information on the conduct of others.
• Audit exists because stakeholders cannot obtain the required information or reassurance.
• Audit serves as a social control mechanism to monitor conduct and performance, and ensure accountability.
• Without audit, there is no control, and therefore no seat of power.
• The audit function is ever-changing due to evolving technology and stakeholder requirements.
• Internal audit is a continuous assessment of the organization's financial and non-financial metrics for risk management.
• Internal auditors function within a company to ensure the accuracy of financial operations, detect fraud, and improve procedures.
• The scope of external work is controlled by management, but independence is maintained.
• External auditors' reports are specified by auditing standards.
• Companies that meet external auditor reporting requirements present a "true and fair view" in accordance with GAAP or IFRS.
• External Auditors examine financial statements' material correctness.

Internal vs. External Audit Functions (Comparative Table)

• Purpose: Internal Audit - reviews financial statements, operations, processes, internal controls/risk management/corporate governance/fraud detection; External Audit - reviews financial statements/compliance
• Relationship to Company: Internal Audit - employees; External Audit - independent
• Focus: Internal Audit - continuous improvement & strategic goals; External Audit - fair reporting of financials/compliance with the relevant laws
• Audience: Internal Audit - senior management; External Audit - external stakeholders
• Perspective: Internal Audit - historical and the future; External Audit - historical
• Timing: Internal Audit - continuous; External Audit - end of year/quarter
• Profession: Internal Audit - none required; External Audit - CPA firm/CPA overseen
• External Auditors provide assurance on the accuracy of submitted financial reports to stakeholders.

Internal Audit Effectiveness Framework

• The International Professional Practices Framework (IPPF) gives a conceptual framework by the Institute of Internal Auditors (IIA).
• The IPPF provides guidance, organized as mandatory/recommended.

Understanding the Audit Function's Dynamics

• Internal audit is evolving into a consultative role, especially when the external auditors find significant issues.
• The internal audit function needs to align with organizational objectives.
• Improve audit efficiency, streamline processes, and enhance cost savings.
• Proactively cover risks and emerging issues.
• Develop cost efficiencies
• Identify and employ correct internal and external skills.
• Three key steps for Internal Audit to transform to value-driven strategic performance: link internal audit to business agenda, build case for change, create plan that focuses on value, measurement, and accountability, enable internal audit transformation.

Terminology

• External Auditor: Person inspecting financial records of an organization to provide an opinion on the fair presentation.
• Internal Auditor: Company employee who provides an independent, objective assessment of financial and operating business activities (including corporate governance).
• Auditor Independence: Refers to the independence of external auditors.
• Accountability: Obligation for an individual or organization to account for activities, accept responsibility, and disclose results transparently.
• Audit Evidence: Verifiable information, statements, and records related to audit criteria (GAAP/IFRS).
• Corporate Governance: Framework of rules and practices used by a board of directors to ensure accountability, fairness, and transparency in stakeholder interactions.