Chapter 4 Flashcards
What should you be able to distinguish between by the end of the chapter?
The role-players within public and private sector organisations
Who do internal auditors typically report their findings to?
Superiors, senior management, the Board of Directors (BOD), and the Audit Committee (AC)
What skills are crucial for internal auditors to succeed professionally?
Good human relation skills
What is a key responsibility of internal auditors?
Examine and evaluate how people do their work
True or False: Internal auditors must understand both individual and group dynamics.
True
What is the typical organisational structure that includes internal auditors?
Owners, Financial director, HR director, Marketing director, Audit committee, External auditors, Operations director, Board of Directors, Chief Executive Officer
Name three types of organisations in the public sector.
- National government
- Provincial government
- Local municipalities
What is the role of the Board of Directors (BOD)?
Determines the organisation’s strategy and direction
What is the purpose of the Chief Audit Executive reporting to the BOD?
To strengthen independence and provide a reporting line regarding management’s wrongdoings and/or inefficiencies
What does functional reporting in internal auditing include?
- Approving the internal audit mandate and charter
- Communicating audit engagement findings
- Approving the appointment of the chief audit executive
- Determining remuneration of staff
- Reporting scope limitations
What is the main difference between executive and non-executive directors?
Executive directors are part of day-to-day activities; non-executive directors are not
What is the importance of an effective Audit Committee (AC)?
Ensures independence of the Internal Audit Function (IAF) and addresses audit findings
How do internal auditors add value to operations?
By working with management to improve processes and provide assurance
Fill in the blank: Internal auditors must stay _______.
objective
What perception do 81% of staff have about internal auditors?
They see IA’s as policemen or attorneys
What is participative auditing?
IA stays in control of the audit but allows staff to assist in obtaining evidence and reaching conclusions
What are some reasons line staff may be hostile towards support staff?
- New procedures disrupt comfort zones
- Revised methods expose inefficiencies
- They only see the hassle of change
What is the primary objective of external auditors (EA)?
To express an opinion on whether the financial statements fairly present the financial position of the organisation
What differentiates internal auditors’ objectives from those of external auditors?
Internal auditors serve the needs of the organisation, while external auditors serve the needs of owners and third parties
What are the two types of reporting for internal auditors?
- Functional reporting to the Audit Committee
- Administrative reporting to the CEO or senior manager
True or False: Internal auditors are independent contractors.
False
What should the Audit Committee ensure regarding management processes?
That proper processes are in place to ensure accountability
What is the main focus of internal auditors?
Evaluating controls designed to achieve the organisation’s goals and objectives
What should internal auditors do to maintain objectivity?
Not get involved in operations or decision-making processes
What is a common conflict between internal auditors and staff?
Staff see internal auditors as watchdogs highlighting incompetencies
How can internal auditors support the Audit Committee?
- Review the AC charter
- Draft the AC’s meeting agenda
- Assist with distribution of materials for meetings
What is an outcome of effective participative auditing?
A win-win positive outcome benefiting both internal auditors and staff
What role does the Chief Audit Executive (CAE) play in communication with the Audit Committee?
Keeps AC informed of emerging trends and successful practices in internal auditing
What is the professional body associated with Internal Auditors (IA)?
As a Certified Internal Auditor with the IIA
The IIA stands for the Institute of Internal Auditors.
What is the professional body associated with External Auditors (EA)?
As a CA(SA) with SAICA and with IRBA
SAICA stands for the South African Institute of Chartered Accountants and IRBA stands for the Independent Regulatory Board for Auditors.
What is required for all government entities under the PFMA and MFMA?
Internal Audits (IA)
PFMA stands for the Public Finance Management Act and MFMA stands for the Municipal Finance Management Act.
Which framework requires auditing for companies registered on the JSE Limited?
King IV
King IV refers to the King Report on Corporate Governance.
What does IA focus on?
Past, present, and future events through evaluating controls designed to achieve the organisation’s goals and objectives.
What is the main focus of EA?
The accuracy of historical information expressed in the financial statements.
What is the main concern of Internal Auditors (IA)?
With the prevention and detection of fraud (not main concern).
What is the main concern of External Auditors (EA)?
About material misstatements in the financial statements.
What standards do Internal Auditors (IA) follow?
GIAS
GIAS stands for Generally Accepted Internal Audit Standards.
What standards do External Auditors (EA) follow?
International Auditing Standards and Code of Ethics issued by SAICA.
What types of audits do Internal Auditors (IA) perform?
Financial, compliance, operational, IT, environmental, forensic, risk management audits, consulting.
What type of audits do External Auditors (EA) perform?
Financial audits.
What is a benefit of coordination for External Auditors (EA)?
Gain more insight into the workings of the organisation due to the in-depth knowledge and experience of the IA.
What is a benefit of coordination for Internal Auditors (IA)?
IA’s status can be enhanced if the IAA has been evaluated by the EA.
What can the organisation enjoy through effective coordination between IA and EA?
A material saving on audit fees.
What is the responsibility to coordinate efforts of EA’s and IA’s?
Lies with the Board of Directors (BoD), but is normally delegated to the Chief Audit Executive (CAE).
What must CAE understand about the work performed by EA?
The nature, extent, and timing of work.
What should be discussed in periodic meetings between IA and EA?
Audit coverage, common understanding of audit techniques, methods, and terminology.
What do EA’s need to consider before relying on IA’s work according to International Standards on Auditing 610?
Organisational status, independence, objectivity.
Fill in the blank: EA have to consider the _______ of the work performed by IA.
[scope]
What skills are needed to achieve good relationships with all role-players?
Sound communication, behavioural and presentation skills.
What is essential for effective communication with EA?
Understanding the EA’s techniques, methods, and terminology.
True or False: IA’s can report to any level of management without limitations.
False.
What does the CAE need to ensure regarding follow-up and corrective actions?
Appropriate follow-up and corrective action have been taken.
What should CAE provide to EA’s for effective coordination?
Sufficient information so that EA’s can understand the techniques, methods, and terminology of the IA’s.
