Internal audit tools and techniques Flashcards
Where is the recording of engagement information documented?
The recording of engagement information is documented on working papers
Finish the sentence.
Working papers keep a record of…
All actions by the internal auditor and document the engagement’s objectives, procedures, evidence and communications
Why should working paper be kept?
To provide evidence that the internal auditor performed the engagement and can serve as a useful information source in subsequent engagements.
True or false
Working papers form the basis of the internal auditor’s opinion by, apart from substantiating engagement findings, offering a systematic, logical representation of information associated with the engagement.
True
State the different types of working paper files.
- Current, annual or carry-forward working paper files
- Permanent or perpetual working paper files
What does current working paper represent?
A set of working papers related to specific engagements performed during the current year.
What does current working paper include?
The specific engagement’s objectives, programmes, procedures, evidence, results and communications.
True or False
Internal auditors can include virtually anything that related to an engagement in the current working paper file, including unnecessary documents
False
Internal auditors can include virtually anything that related to an engagement in the current working paper file, but should avoid cluttering the file with unnecessary documents
True or false
The content of the current working paper file is independent from the nature of the engagement
False
The content of the current working paper file depends on the nature of the engagement
What are the contents of current working paper?
- Documents relating to the planning of the engagement
- Internal control questionnaires, system descriptions, flowcharts, control matrices, notes of interviews performed and other information related to the engagement.
- The engagement work programme
- The investigation and evaluation of the effectiveness of the internal control activities
- The engagement procedures performed according to the engagement work programmes; the information obtained and conclusions drawn; and proof of review by senior persons
- Reporting on results of the engagement; engagement client and management comments; and a list to whom communications were distributed after the engagement
- Details of follow-up planned or performed
State the characteristics of working paper
- Normally standardised, but tailored according to needs of IAA
– Heading including name of client/dep/function, title and descr of content,
objective of WP, date/period of audit engagement
– Each WP signed and dated by preparer and reviewer – Each WP have reference number – All tick marks and symbols/legends should be explained
– Sources of data clearly identified
What is permanent or perpetual working paper files?
- Are relevant to more than one engagement and more general in nature
What is included in the permanent working paper?
A description of major activities, products, locations and job descriptions for an engagement clients, usually through system description, organisational chart or similar tool.
Can copies of the engagement client’s procedures manuals and other permanent documentation may be included in the permanent working paper files?
Yes
True or False
Permanent working paper files should be kept updated should changes occur at the engagement client
True
What is the purpose of permanent working paper files?
To be a source of reference for the internal auditor when planning or performing engagements
True or false
Working papers are under the control of the internal auditor activity
False
Working papers are under the control of the internal auditor activity, but they remain the property of the organization and should only be accessed by authorised individuals
Which parties should the CAE consider requests for access to working papers?
- External auditors
- Organizational staff
If the relationship with the third party does not constitute a working relationship (external auditors or organization’s attorneys).
Who should the CAE first obtain approval from?
- Senior management
- Legal counsel
True or false
The CAE should set a policy in place for the retention period for working papers.
True
What is the common length period organization keep documentation (working paper files) on site?
At least 3 years
Define the walk through test
Internal auditors perform walk-through tests to obtain an understanding of the engagement client’s processes, systems, operations and activities.
What does the walk through test give internal auditors?
An idea of how the process flows or a transaction is recorded, indicating the flow of documentation and actions, as well as the control activities present.
Finish the sentence
Interviews and enquires are used throughout the engagement to…
Gain information and evidence
What does interview usually refer to?
A more formal action where the internal auditor asks the engagement client in person a number of questions related to the engagement.
True or False
Interviews are normally scheduled as part of planning the engagement to gain an understanding of the engagement client.
True
What are enquiry referred as?
To an enquiry directed to personnel or to third parties regarding the application of certain procedures, and need not necessarily be as formal as interview
True or False
Enquiry can done only orally?
False
Enquiry can done orally or in writing
True or False
The internal auditor may rely solely enquiry for audit evidence
False
The internal auditor may not rely solely on enquiry for audit evidence, but may use it as a secondary source of information to supplement other sources of evidence
Disclose the normal rules for the application of interview and enquiry techniques
- Be polite and accommodating when making an enquiry
- Respect the employee’s normal tasks to be completed. Make an appointment should the person not be available immediately, and arrive on time
- The best enquiry begins with “how”, “what”, “when”, etc; avoid questions starting with the words “Do you…?”
- Do not accept all explanations offered to you. Perform a corroborative enquiry.
- Where possible, follow explanation up with documentary support. Should the person not be willing to prepare such document, it may be prepared by the internal auditor and the person may be asked to simply sign the document
- Effective communication skills should be adopted so that all the necessary information may be obtained from the person
- When oral evidence is evaluated, the person’s knowledge of the subject as well as reasonability of the answers given should be taken into consideration
- Enquiry from third parties is often replaced by written confirmation
True or False
Many internal auditors consider the internal control questionnaire to be the most important document in the conduct of a compliance audit engagament
True
Finish the sentence.
The performance of an effective audit engagement depends …
On whether or not the questionnaire is completed properly
What does the internal control questionnaire link?
Gaining an understanding of the system and processes, and performing the audit engagement procedures related to control activities for the system
True or False
The important principle in the design of an internal control questionnaire is the yes/no principle
True
Define system descriptions
- Are written descriptions of the business process or business unit, and include, amongst others, the internal control activities in the system being investigated y the internal auditor.
- A systems description is used to obtain an understanding of a specific internal control system. The internal auditor uses the systems description to conduct risk and control assessments.
What is often combined with system description to give a clear description of the internal control activities in the system
Flowchart
What is system description planning?
To gain understanding of internal control activities currently in place regarding process being audited
What is system description performance?
To gather evidence
What are flowcharts planning?
To gain understanding of internal control systms
What is flowcharts peformance?
To gather evidence
What does flowchart give?
A visual display of the internal control activities
State the planning of control matrix
To gain understanding of internal control system
State the performance of control matrix
To gather evidence
What is control matrix used in conjuction with?
The system description
Where can control matrix be used?
In a computerized environment or in a system where manual and computerized procedures are followed
Where does the control matrix indicate the task and function performed?
- Task is indicated on the horizontal axis
- Function performed on the vertical axis
State the purpose of the control matrix
The method lends itself well to the identification of segregation of duties, as all tasks completed by a single person are identified
How is the control matrix computer system used?
Have certain levels of access, these access levels must be clearly specified in the matrix
How can internal auditors use analytical procedures?``
To identify information to be examined or to obtain evidence.
What are analytical procedures?
- Are performed by studying and comparing relationships among both financial and non-financial information and are based on the assumptions that, in the absence of any known conditions to the contrary, relationships among information may reasonably be expected to exist and continue.
- Analytical procedures are used by internal auditors to identify possible financial risk areas during the planning stage of the engagement and to determine the reasonableness of amounts during the performance of a financial audit engagement.
Provide examples of specific conditions that might cause unexpected relationships and that should be considered by the internal auditor when performing analytical procedures .
- Once-off unusual transactions
- Accounting changes
- Changes in the economic conditions
- Errors or irregularities occurring
- Changes in the legal environment
Explain computer audit techniques
The audit system and processes has had to be adapted for the computerized environment.
Computer audit techniques
1.AROUND
Computer ignored and used as support tool
Computer audit techniques
- WITH
*IA uses computer to assist in audit engagement *Includes use of, for example, auditing software and completing working papers etc
Computer audit techniques
- THROUGH
*Testing computer system for consistency and accuracy in processing = data is keyed into system and results compared with expected results by IA
Explain auditing with the computer
- The auditor uses the computer to assist in the engagement.
- Simple task like the completing working papers, printing confirmation letters or analysis ratios are included.
Explain auditing through the computer
- Auditing through the computer involves testing the computer system for consistency and accuracy in processing.
- Data is keyed into the system and results are compared with expected results by the internal auditor
Explain auditing around the computer
- The computer was ignored and used only as a support tool for the recording of transactions, in an organization and the auditor could audit around.
The internal processing of the computer is ignored and the audit trail is easy to trace from source document to output in the form of reports generated.
What is sampling?
A tool used by the internal auditor to identify items to be audited.
What does sampling allow?
It allows the internal auditor to select only a few items from a population for investigation and then project the results to the total population.
True or False
The internal auditor only uses statistical sampling techniques
False
The internal auditor uses both statistical and non-statistical sampling techniques
What is statistical sampling technique?
The use of statistical sampling techniques requires thorough planning by the auditor
Describe and state the purpose of discussion with management
Obtain knowledge of management’s integrity and the business environment
Describe and state the purpose of analytical procedures
Meaningful study of relationships and comparisons with:
- previous periods
- Expected results (budgets and forecasts)
- Other industries
- Non-financial data
* Assists in obtaining knowledge of business during planning stage
* Identify unusual items, problems areas
Describe and state the purpose of internal control questionnaires
- Obtain knowledge of internal control systems and internal control measures in place
- Indication of strengths and weaknesses in the internal control system
Describe and state the purpose of flowcharts
- Indication of interaction and flow of documentation from origin (source document) to reporting (financial statements)
- Obtain an understanding of the accounting system and internal control system by identifying documents, records, processing methods, etc.
Describe and state the purpose of walk through test
- Indication of how process or transaction is recorded, flow of documentation activities and internal control activities in place
Define interviews and enquires
Internal auditors interview engagement client staff and management to obtain an understanding of the processes, systems, operations and activities as well as to obtain sufficient, relevant, reliable and useful engagement information
Define internal control questionnaire
Internal auditors use internal control questionnaires to determine the adequacy and effectiveness of a specific internal control system/activities.
Define flowcharts
A flowchart is a visual representation of a system, process or activity and is used by the internal auditor to obtain an understanding of the system, process or activity to be audited.
Define control matrixes
A control matrix is used by the internal auditor to obtain an understanding of a system, process or activity with specific reference to the people involved (job descriptions) and the various tasks or activities performed by each person.
Define computer audit techniques
Computer audit techniques are used by internal auditors to audit in a computerised environment
Define working papers
Auditors use standardised working papers to document all the engagement information relevant to the entire engagement process.
