Week 6: Internal Audit & External Assurance for sustainability reporting Flashcards
WHAT IS INTERNAL AUDIT?
The role of internal audit is to provide independent assurance that an organisation’s risk management, governance and internal control processes are operating effectively.
what are the roles and duty of internal auditors?
Internal auditors:
Have a professional duty to provide an unbiased and objective view.
Must be independent from the operations which they evaluate and report on and must have access to the highest levels in an organisation
Talk to executives at the very top of the organisation about complex, strategic issues
what must an internal audit activity have to be effective?
To be effective, the internal audit activity must have:
Qualified, skilled and experienced people
Who can work in accordance with the Institute of Internal Auditors Code of Ethics and the International Standards on internal auditing
whats the difference between external and internal audit in who they report to?
external audit reports to shareholders or members who are outiside the orginistations governance structure.
internal audit reports to the board and senuor management within the orginistaions governance structure.
whats the difference between external and internal audit in there objectives?
external audits objective is to add creditibility and reliability to financial reports from the orginisation to its stakeholders by giving opinion on the report
internal audits goal is to evaluate to improve the effectiveness fo governance, risk management and control processes. this provides members of the board with assruance that helps them fufil their duties to the orginsiation and its stakeholders.
Explain the differences between internal and external audit in terms of regulation?
Internal audit is not regulated like external audit
There is no legal requirements to have an internal audit function, though codes of corporate governance and stock exchange listing rules may require it
The scope of internal audit activities is set by company policy
Internal auditors are not required to join professional body, though many are members of the Institute of Internal Auditors (IIA)
Standards for Internal Auditing are a Code of Good Practice rather than a binding regulatory reporting framework
what are the three concepts internal audit are concerned with?
Internal audits are typically concerned with the following concepts:
Economy: Sufficient quality at minimum cost
Efficiency: Maximum output from resources
Effectiveness: Output achieving desired results
what is a systems audit?
Systems audits
Testing and evaluating internal controls, not only financial controls, but any management may seek to test
Assessing whether controls are designed adequately and functioning correctly
what are IT audits?
IT audits
Hardware, applications, environment and systems development
what are Financial audits?
Financial audits, similar, or perhaps prepared to assist the work conducted by external auditors, ensuring;
Financial records are complete and accurate
Erroneous payments are recovered
what are the six types of audit?
the six types of audit are:
1) Financial audits
2) Systems audits
3) IT audits
4) Value for money audits
5) Environmental audits
6) Social audits
what are Value for money audits?
Value for money audits
Challenge: whether there are better uses for resources
Compare: performance to other service providers
Consult: many (or all) users of service
Compete: helps service providers maintain efficient & effective service
What are Environmental audits?
Environmental audits
Ascertain the impact on an entity is having on the environment
Offer assurance whether as company is in compliance with laws and regulations
What are Social audits?
Social audits
Influence beyond primary relationship with shareholders
Employees, customers, suppliers, community
What must be done if the auditor is to rely on the work of internal audit?
The scope of internal audit function must be confirmed
The external auditor must assess the internal auditor in respect to:
Competence
Due professional care
Independence
Integrity
Resources
What must be done if the auditor is to rely on the work of internal audit?
The auditor will typically:
- Review the work and methodology of the internal audit function
- Consider whether there is sufficient evidence to support their conclusions
- Consider whether their conclusions are appropriate
- Consider whether the management response to their conclusions are appropriate
Remember the external auditor DOES NOT have to use the work of internal audit, but it may save time and therefore money to do so
what are the Advantages of outsourcing internal audit?
Advantages of outsourcing internal audit:
- Staffing: there is no need to spend money in recruiting further staff
- Immediate solution: outsourcing can provide the number of staff needed straight away
- Skills and experience: outsourcing provides access to a large pool of staff available
- Cost savings: outsourcing can be an efficient means to control the costs of internal audit as any associated costs such as training will be eliminated
- Budgeting: the costs for the internal audit service will be agreed in advance
- Flexibility: If the internal audit department is outsourced, there is near total flexibility in its internal audit service
what are the Disadvantages of outsourcing internal audit?
Disadvantages of outsourcing internal audit:
- “Poor visibility of individual contract performance
- Lack of contract management skills
- Poor relationship and interaction with contractor
- Inconsistent approach to day-to-day contract management
- Third party provider ethical/cultural issues
- Unclear roles and responsibilities within contract management team”
what are the advantages of mandatory internal audit?
mandatory internal audit Advantages:
Advantages:
Contributes to good corporate governance:
* Risk assessment
* Independent review of accounting systems
- Detection and prevention of fraud
- Check compliance with regulations (fines?)
- May reduce external audit fee
- Can outsource to obtain service if necessary
what are the disadvantages of mandatory internal audit?
Disadvantages:
-Difficulty in specifying requirements to suit all companies
- Self-regulation may be more effective
- Costs compared to benefits
- Overlap with external audit
- Legal requirement
