Internal Audit Chapter 10 PDF

Internal Audit Chapter 10 Internal audit definition: Internal auditing is an independent , management function established within an organization to evaluate operating activities and improve the effectiveness of risk management, control, and governance processes. ...

Internal Audit Chapter 10 Internal audit definition: Internal auditing is an independent , management function established within an organization to evaluate operating activities and improve the effectiveness of risk management, control, and governance processes.  Introduction o Recent events including global financial crises have emphasized need for internal auditing within corporate governance structures o In the early days of the Sarbanes-Oxley (SOX) Act, the internal audit played a role in creating and managing SOX programs o IIA Saudi is a professional reference and voice of the internal audit profession in Saudi Arabia  Risk management ❖ Risk is the possibility of an event occurring that will have an impact on the achievement of objectives. ❖ Risk is measured in terms of impact and likelihood. ❖ To help management understand : Identify and assesse significant risks Appropriate risk responses. Whether the risks are under control  Controlling ❖ Rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. ❖ Internal audit evaluate the controls that help organizations: Suggest improvements to increase efficiency and effectiveness or to lower operating costs Determine whether policies and procedures are followed Detect fraud or manipulation of records provide reasonable assurance that objectives and goals will be achieved  Governance Governance is the combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization toward the achievement of its objectives : Promoting appropriate ethics and values within the organization Communicating risk and control information to appropriate areas of the organization Coordinating the activities of and communicating information among the board, external and internal auditors, and management  Effective Governance Board of Directors External Audit Internal Audit Management  AUDIT COMMITTEE There is a relationship between the audit committee and internal auditors it’s important for all parties to do their job commitment... The audit committee acts as a link, between the board of directors and internal auditors. Composed of 3 to 5 members of the board. The members should be board members and outsiders. The audit committee has an oversight responsibility for internal and external audit functions. Audit committee acts as an independent check on management  Internal audits types Internal audits are conducted for different reasons and with varying objectives Some audits are required by regulation or policy, while others are requested by management to help improve processes Every organization, regardless of its size, should have some type of internal control system  Internal audit types ❖ Compliance audit: To ensure compliance with rules, regulations and laws applicable to a company. ❖Operational audit: To ensure efficient and effective conduct of operations of a company. ❖ Information system audit: To evaluate and ensure proper functioning of the information system. ❖Environmental audit: To ensure compliance with the environmental laws and regulations.  Internal vs External Audits Both are checking whether the organization is performing certain activities or controls correctly. Internal Audits External Audits Internal Auditors, typically External Auditors, typically Who Performs the Audit employees of the company members of a CPA firm Board of Directors, and Shareholders and members Who is the Audit Reported to members of management outside of the company  Internal vs External Audits Internal Audits External Audits Financial Reports, and What Does the Audit Cover Internal Controls related to: Governance, Risk Management, and Internal Controls related Process Improvement to Financial Reporting To assess and improve the To provide reasonable effectiveness and control over critical assurance, of financial Why is the Audit Performed processes. To provide the reports from the management information related to organization to its their duties. stakeholders. When are Results Reported by May report at any frequency Annually designated by the Board the Audit?  Internal Audit Process: An internal audit should have four general phases of activities: Planning, Fieldwork, Reporting, and Follow-up  Internal Audit Process: 1) Planning : During the planning process, the internal audit team will define the scope and objectives relevant to audit. 2) Fieldwork : Fieldwork is the actual act of auditing. Throughout this phase, the audit team will execute the audit plan. 3) Reporting : Issue final report to the management, share important and sensitive findings with responsible managers. 4) Follow-up: The final stage is an important one to following up is critical to ensure that the recommendations have been implemented. End of Chapter 10