chap18 Flashcards
Comparison of Internal Auditors/Audit with External
Auditors/Audit:
Independence
Appointment
Qualification
Scope
Report to
Report Format
Scope of Activities Internal auditor
- Monitoring of internal control (performs TOC)
- Examination of financial and operating
information (performs TOD) - Review of compliance with laws and regulations
- Review of operating activities (economically,
efficiently and effectively). - Special investigations (e.g. suspected fraud)
Competence:
q Qualification and experience.
q Knowledge and skills of financial reporting.
q Training and hiring process
q Adequate resources.
Objectivity:
q Reportable to.
q Determination of scope..
q Conflicting responsibilities.
q Familiarity threat.
q HR decisions (hiring, firing, promotion).
q Restrictions.
Approach
q Planning, Direction, Supervision, Review
q Documentation.
q Quality Control Standards
Do NOT use work if
q Competence or Objectivity lacks.
Use but less reliance if
q Area involves Risk and Judgment
q Less than serious concerns about competence
or objectivity.
Work can be used in following areas
q Documentation of System.
q Risk assessment.
q Tests of Controls.
q Substantive procedures (with low judgment).
q Inventory counts.
q Compliance with laws.
q Trace transactions
Evaluate Adequacy of Work
Evaluate:
q Work properly performed.
q Evidence obtained.
q Conclusions appropriate, and
consistent with work performed.
q Exceptions resolved.
Procedures to Evauate:
q Reperformance,
q inquiry,
q observation.
q inspection.
Extent depends on area and internal
auditor
Discussion and Agree Matters with
Internal Auditor
q nature of work.
q timing.
q coverage.
q materiality.
q sample sizes and methods of
selection.
q documentation.
q review.
Communication and Documentation/ use of work
Communication with TCWG:
q Planned use of work.
Documentation:
q The evaluation of Competence,
Objectivity, Approach.
q Nature and extent of work used.
q Procedures to evaluate adequacy
Whether to obtain direct assistance
NOT if:
1. Prohibited by law.
2. Significant threats to competence or
objectivity.
Which areas to obtain Direct Assistance
Consider:
q Risk and Judgment in area,
q Competence and Objectivity of internal auditor.
q Leve of Involvement of external auditor in audit.
NOT in following Areas:
q Higher risk and significant judgments.
q Risk of fraud.
q Unannounced audit procedures.
q Confirmation requests
Auditor’s Responsibilities if he Uses Internal
Auditor to Provide Direct Assistance
Obtain Agreements:
q Authorized representative of the entity (NOC) and
q Internal auditors (to ensure confidentiality and objectivity).
Direction, Supervision and Review:
q To ensure sufficient appropriate evidence obtained.
q Different as compared to audit team member (considering risk
and judgment of area, competence and objectivity of internal auditor).
q checking back some of the work performed.
Communication and Documentation
direct assistance
Communication with TCWG:
Nature and extent of planned use of internal
auditors to provide direct assistance.
Documentation:
q The evaluation of Competence, Objectivity.
q nature and extent of work.
q Who Reviewed, when.
q Written agreements.
q Working papers.
Introduction to Expert
Areas where Expert may be used:
q Fair value of Assets and Liabilities (property, pension)
q Legal Cases, and Legal Requirements.
q Engineering data (machinery life)
q Tax issues.
q IT Expertise.
Evaluate Competence, Capabilities and Objectivity of
Expert.
Factors to consider:
q Professional qualification
q Experience and reputation.
q Independence from client company.
Sources to obtain knowledge:
q Personal experience.
q Discussions with expert.
q Discussions with others familiar with expert.
q Information from relevant authorities.
q Published papers or books by expert.
Obtain Understanding of Field of
Expert’s Work:
q To determine scope of work.
q To evaluate adequacy of work.
Agree Terms of Engagement with Expert:
- Nature, scope and objectives of work.
- Responsibilities of auditor and expert.
- Form of expert’s report.
- Confidentiality requirements.
Evaluate Appropriateness/Adequacy of Work
EXPERT
- source data.
- assumptions and methods.
- findings and conclusions,
- consistency with other audit evidence.
If Expert’s Work is Not Adequate for Auditor’s Purpose:
q Agree additional work, or
q Perform additional procedures (e.g. hiring another expert), or
q Scope limitation (if still not adequate).
Reference to Expert’s Work in Audit Report
Reference of expert only if:
q Required by Law, or
q Relevant to explain modified opinion.
q Key Audit Matter.
If reference included:
1. Obtain permission of expert.
2. Indicate reference does not reduce auditor’s responsibilities
