Module D Flashcards
Can public accounting firms provide internal audit services to publicly traded companies?
Yes, if they are not external audit clients
After SOX, public accounting firms could not provide internal audit services to…
Their external audit clients
Scope of the audit of internal auditors vs. External auditors
Scope of the audit is wider for internal auditors than external
Auditors
Internal auditors are responsible for what, that goes beyond fair presentation of financial statements?
The efficiency of the financial reporting process
How often do internal auditors perform audits? Why?
Monthly,
to make sure management is informed to make reliable decisions
Can accounting firms provide internal audit services to Nonpublic companies they are externally auditing?
Yes
External auditing refers to?
Financial statement auditing
Many corporations believe that they gain expertise and improve control over audit costs when…
The internal audit function is outsourced to an external audit firm
Internal auditing
Examination service provided to a company to assist the
Company to meet its corporate goals and objectives
By evaluating and recommending risk management, control
And governance processes
How do internal auditors demonstrate their independence?
2) what does this do?
They report directly to the audit committee
2) reduces management’s influence over audit scope and
Reporting
5 key elements in the internal audit charter approved by senior management
1 commitment from management to establish independent
Audit organization
2 defines authority and responsibility of audit department
3 defines scope of audit department’s activities
4 department’s authorization to perform audits, request materials
And gather evidence
5 performance and reporting requirements of audit department
Required attitude of internal auditors?
Impartial and unbiased
Internal auditors must not have any…
Conflicts of interest
Auditors should take great care to avoid even the appearance that they are…
Auditing their own work or are biased
The primary objective of internal audit is to…
Assist members of management and the Board in effective
Discharge of their responsibilities
Internal audit will furnish management with what 4 things?
1 analyses
2 recommendations
3 counsel
4 info concerning activities reviewed
Generally, internal auditors perform little of their work on…
The financial statements
Internal auditors are primarily concerned with…2
Affecting the company’s bottom line
and adding value to improve operations
Internal auditors add value to a company primarily by achieving the following 4 audit objectives
1 recognizing and analyzing industry, business and operational
Risks
2 improving the economy and efficiency of operations
3 ensuring compliance and management directives
4 serving as management’s representative
Internal auditors evaluate changes in the economy, business environment, technology, regulatory environment and managment. These types of changes often result in…
Additional risks for the organization
The internal audit department must take a proactive approach to…
Reduce or eliminate risks for the organization
Over a period of a few years, an auditor will have to…
Evaluate almost every department and aspect of the business
Making them a valuable asset to the business
Many organizations use internal audit as a training ground for…
Management
Management directives
Provided by management to all of organization’s departments
Regarding desired performance of company’s business
Delineate internal controls established by management to
Eliminate risk
What are management directives designed to ensure?3
1 company complies with laws and regulations
2 departments are operating efficiently and effectively
3 risks are minimized
Internal audit department: management directives
Internal audit is charged with reporting on departments’
Compliance with these directives
Internal auditors vs external auditors: compliance issues
2 for internal audit
External auditors review compliance with internal controls
That are relevant to the financial reporting process
Internal auditors concerned with noncompliance that 1) increases
Risk faced by company 2) diminishes efficiency/effectiveness
Of company’s operations
Internal auditors serve as management’s representative by…
Visiting operations in remote locations management does not
Have time to visit
Scope of service: Internal auditors make recommendations that result in…
Additional profits or cost saving for their companies
Internal auditors can be thought of as management…
Consultants
What 4 services are provided by internal auditors?
1 financial audits
2 compliance audits
3 operational audits
4 audit effectiveness of achieving program results
Internal audit service:
Financial audits of…
Financial reports and accounting control systems
Internal audit service:
Operational audits to evaluate…
Economy and efficiency of business process
In financial statement audits, internal auditors may evaluate areas that management believes may be of…2
1 concern to external auditors
2 problem areas found in previous audit
Internal auditors more likely perform audits of financial reports for…
Internal use
Audits of financial reports for internal use
Provides management assurance that the info they are using
For decision making is relevant and reliable
Compliance audit
Examination designed to ensure that organization is following
Laws, regulations and management directives
Performed by internal auditors
Operational auditing
Examination designed to evaluate the processes and procedures
Of an organization Or an area within the organization
to ensure its operating effectively and efficiently
The goal of operational auditing is to…
Help managers discharge their management responsibilities
And improve profitability
Operational auditing is considered an…
Integral consulting service for internal auditors
Internal audit supports the board of directors and its committees
By independently assessing…
The effectiveness of an organization’s system of internal
Controls and compliance with legal requirements
Governance audits
Ensure management receives accurate, timely info concerning
Management and leadership throughout the organization
As well as proper implementation and execution of company
Strategy/plans
Auditors who work with manufacturing companies may provide…
Quality control audits
Quality control audits
Determine whether product meets standards established by
Management
Quality control audits: customer service departments
Subject to quality audit to ensure customers are being served
In the manner prescribed by the company
Environmental audit
Review procedures, record keeping, liability issues, compliance
As they relate to organization’s environmental issues
Make recommendations for company to be more environmentally
Friendly
Sustainability audits
Internal auditors establish sustainability program, measurement
Criteria, reporting standards
In sustainability audits, what 5 areas do auditors assist management in?
1 governance 2 ethics 3 environment issues 4 health, safety and security 5 human rights and work conditions
Sustainability audits are done for…
Corporate social responsibility
3 standards of IIA
1 attribute standards
2 performance standards
3 implementation standards
Internal audit reports are not…
Standardized, because they involve a variety of assignments
Key criterion for an internal audit report
Clear and concise communication of findings and
recommendations
4 qualities an internal audit report must have
1 accurate
2 concise
3 clear
4 timely
5 elements that need to be described in quality auditor’s report
1 condition 2 criteria 3 cause 4 effect 5 recommendation
Exit conference
Internal auditors meet with business unit’s management team to
Review the audit report before its distributed to senior management
3 purposes of exit conference, it to inform business units management of…
1 audit results
2 reach agreement on correctness of findings
3 learn corrective action management plans
Who are the internal audit reports sent to?
1 CEO
2 audit committee
3 senior manager overseeing business unit
Follow up
Check if actions implemented from internal auditors report
Are appropriately taken
Only after the follow up is completed is the audit considered…
Closed
Do external auditors have a follow up requirement?
No
