W19 Internal Audit

Question 1

what is internal auditing

Answer 1

an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes

Question 2

Is an internal audit needed

Answer 2

There is no requirement in law in most countries for companies to have an audit service but considered best practice

Can be included in corporate governance codes/standards

For small businesses less likely a need for internal audit but for public sector it is often a statutory/regulatory requirement

Question 3

Difference between internal and external audit in terms of objective

Answer 3

External audit: express aan opinion on the truth and fairness of the f.s

Internal audit: improve the company’s operations by evaluating and improving the effectiveness of risk management, control and governance processes

Question 4

Difference between internal and external audit in terms of ho they report to

Answer 4

External: report to shareholders

Internal: report to management

Question 5

Difference between internal and external audit in terms of availability of the report

Answer 5

External: publicly available

Internal: not publicly available

Question 6

Difference between internal and external audit in terms of scope of work

Answer 6

External: verifying the truth and fairness of the statements

Internal: wide in scope and dependent on managements requirements

Question 7

Difference between internal and external audit in terms of appointment and removal

Answer 7

External: by shareholders

Internal: by audit committee/board of directions

Question 8

Difference between internal and external audit in terms of relationship with company

Answer 8

External: must be independent of the company

Internal: may be employees (limits independence) or outsourced (more independent)

Question 9

How can an internal audit function remain independent of the activities they audit

Answer 9

Internal audit should not assume or carry out any executive functions within the audited body

and

• Given the likely scope for internal recruitment,no-one should audit a function they previously had an executive role in for a given period

Question 10

Why is it important to who the internal auditor report to

Answer 10

may impact their independence

may impact on the seriousness with which audit findings are taken and the authority with which they are supported within the organisation

variations in expertise (may not understand what auditor is saying)

variations in time and attention (may not have time to implement auditors recommendations)

Question 11

What is the role of internal audit

Answer 11

Provide independent assurance that an organization’s risk management, governance and internal control processes are operating effectively

Question 12

What are the key activities of the internal audit function

Answer 12

Assessing whether the company is demonstrating best practice in corporate governance

◈ Evaluating the company’s risk identification and management processes

◈ Testing the effectiveness of internal controls

◈ Assessing the reliability of financial and operating information

Assessing the economy, efficiency and effectiveness of operating activities (value for money)

◈ Assessing compliance with laws and regulations

◈ Providing recommendations on the preventionand detection of fraud

Question 13

To what extent can an external auditor rely on the work of an internal audit function

Answer 13

may be able to place reliance on their work

first, the external auditor must evaluate the internal audit function overall and their quality
1) ‘The extent the internal audit function’organizational status and relevant policies and procedures support the objectivity of the internal auditors’

2)level of competence of the internal audit function

3) whether the internal audit function applies a systematic and disciplined approach, including quality control

Question 14

How is the internal auditors work evaluated by external auditor they do/dont place reliance on internal audit

Answer 14

The external auditors evaluation indicates that the risk to the quality of work for IA are too significant == not appropriate to place reliance

if the review indicates that the work of IA can be used == each specific piece of work that the EA plans to place reliance upon must be evaluated

Question 15

How does the EA evaluate specific work of the IA

Answer 15

1. the work was properly planned, performed, supervised, reviewed and documented
2. sufficient appropriate evidence has been obtained
3. the conclusion reached are appropriate in the circumstances
4. the reports prepared are consistent with the work performed

Question 16

How does the EA evaluate specific work of the IA

Answer 16

1. the work was properly planned, performed, supervised, reviewed and documented
2. sufficient appropriate evidence has been obtained
3. the conclusion reached are appropriate in the circumstances
4. the reports prepared are consistent with the work performed