Internal Audit Flashcards
Audit
The process of checking transactions, records and systems in order to vouch their reasonableness and accuracy.
Internal audit
An independent, objective assurance and consulting activity designed to add value and improve and organisation’s operations.
Audit risk
The risk that an auditor may fail to detect material errors, problems or misstatements of accounting balances (Detection risk x Control risk x Inherent risk)
Detection risk
The risk that auditors might not uncover problems due to auditor determined factors, such as working on a sample basis.
Where detection risk is high auditors should do more testing or have special audit procedures put in place.
Control Risk
The risk that an issue may not be prevented, detected or corrected by an entity’s internal control mechanism.
Where control risk is low auditors should test the controls rather than advise on new ones.
Inherent risk
Risk linked directly to the nature of the issue. Audits should plan to include areas where the inherent risk is high e.g. an amount in the financial statements is incorrect
Sampling risk
The risk that the internal auditor’s conclusion based on a sample may be different from the conclusion if the entire population were subject to the same audit procedure.
Compliance audit
The audit of specific activities in order to determine whether performance is in conformity with a predetermined, contractual, regulatory or statutory requirement.
Management audit
An objective and independent appraisal of the effectiveness of managers and the corporate structure in the achievement of entity objectives and policies
Social audit
A review of whether an entity has complied with social policies and social objectives (internal and external) e.g. health and safety, working conditions, equal pay
Environmental audit
A review of how well an entity, its management and equipment are performing with the aim of helping to safeguard the environment. Control of environmental practices and compliance with policies and regulations
Fraud
An investigation into whether employees have circumnavigated the company’s systems of controls in order to benefit themselves at the company’s expense. Often identified through a compliance audit
Post implementation review
Review of the effectiveness of a project to identify improvements that could be made in the future.
Audit team report to
Audit committee
Head of internal audit reports to
Audit committee
