Chapter 9 - Internal audit Flashcards
What is internal audit?
An appraisal activity established or provided as a service to the entity. Its functions include, amongst other things, examining, evaluating and monitoring the adequacy and effectiveness of internal control.
Outline how internal and external audit compare with regards to their reason for existence, who they report to, what their work relates to and their relationship with the company
Which activities would typically be performed by both the internal and external auditor?
Review of compliance with laws and regulations
Assessment of the effectiveness of internal controls
Carrying out tests of details on transactions and balances
What are two features of internal auditors that are not features of external auditors?
Their work is focused on the operations of the entire business.
The role can be carried out by employees of the entity - external audit has to be independent
Which functions can internal audit not perform and in order to operate effectively? Why?
Any function that would involve developing, designing and implementing controls
Indentifying risk in operational matters
Authorising operational matters
This is becasue the internal audit would then have to self review which removes a level of impartiality
Which functions could internal audit perform and still operate effectively?
Examination of financial and operating information
Review of the company’s compliance with laws and regulations
Monitoring the company’s overall risk strategy
Testing internal controls
Giving expert advice on technical accounting matters
Liaising with the external auditors
Auditing board reports not audited by the external auditors
Special investigations into suspected fraud
Making recommendations regarding improvements to controls
Examining and testing financial information
Advising management on cost effective controls for systems and activities
Is having an internal audit function a requirement of the UK Corporate Governance Code for listed companies?
No.
The UK Corporate Governance Code does not require listed companies to have an internal audit function per se, but requires companies to consider the need for one annually, in order to maintain an adequate system of internal controls.
Can internal audit be seen as an internal control in a company?
Yes
Should internal auditors get involved in operational matters?
No
Is it true that internal auditors do not carry out substantive testing?
No.
Describe ‘operational audit’.
An audit of the operational processes of the organisation.
To which parties would the internal auditor report?
The board of directors
The audit committee
Define internal audit.
An appraisal activity established or provided as a service to the entity. Its functions include, amongst other things, examining, evaluating and monitoring the adequacy and effectiveness of internal control.
