Session 3 & 4

• Institute of Internal Auditors Inc (IIA) was created for internal auditors in 1941

• Generally accepted criteria of a profession are:– Adopting a code of ethics– Approving a statement of responsibilities of

Internal Auditors– Establishing a programme of continuing

education.

2.1

Contd..

• Developing Common Body of Knowledge

• Instituting a certification programme.

2.1

Defining of Internal Auditing

• Internal Auditing is an independent and objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization to accomplish its objectives by bringing a systematic disciplined approach to evaluate and improve the effectiveness of risk management, control and Governance

2.2

Contd…

• Focus of internal auditing now is on:– Risk Management and control– Governance.

2.2

Evaluation of risk management and control involves:-• Reliability and integrity of Financial

information

• Compliance with laws, regulations and contracts

• Safeguarding of assets

• Effectiveness and efficiency of operations

• Accomplishment of objectives and goals for operations or programmes.

2.3

Governance:-

• The internal audit should evaluate and make recommendations for improving governance process for achieving the following objectives:-– Promoting ethics and values in organization– Ensuring effective organizational performance

management and accountability

2.4

Contd…

• Effectively communicating risk and control information to appropriate area of organization.

• Effectively coordinating the activities of the entity and communicating information among board/top executives and internal auditors, and management

2.4

General and specific standards for the professional practice of internal auditing.

• Independence

• Internal auditors should have support of Management/Board

• Objectivity

• Supervision

• Compliance with standards of conduct

2.5

Contd…

• Human relation and communications

• Continuing Education

• Due Profession Care

2.5

In Performance of Audit work following Principles should be observed:

• Planning the audit:-I. Establishing audit objectives and scope of work.

II. Obtaining background information about activities to be audited

III. Determining necessary resources

IV. Communicating with those, who are concerned with audit

V. On Site survey to become familiar with activities

VI. Writing audit programme

2.6

Contd…

VII. Determining to whom result should be communicated

VIII. Obtaining approval of the audit work plan.

2.6

Examining and evaluating Information• Information on all matters relating to audit objectives and

scope of work should be collected.• It should be sufficient, competent, relevant and useful• Audit Procedure including the testing and sampling

techniques employed should be selected in advance.• Entire process should be supervised to provide

reasonable assurance to achieve objectivity and audit goals.

• Working papers of audit should be reviewed & should support audit findings and recommendations.

2.7

Result of audit should be communicated by following the procedure mentioned below:

i. Signed written report should be issued.ii. Report should be discussed at appropriate

leveliii. Report should be objective, clear, concise

and timelyiv. It should present, purpose, scope and result

of audit.v. It should also present auditors opinion.

2.8

Contd..

i. It should also contain recommendations

ii. Audit views

iii. Report should be reviewed by the Director of Internal Auditing and approval before its issuance to auditee.

2.8

Following - up

• Internal auditing should determine that corrective action was taken or that management has assumed the risk of not taking corrective action on reported findings.

2.9

Management of Internal Auditing Department• The Director of Internal Auditing is

responsible for properly managing the department so that:-

a) It fulfills the general purposes and responsibilities approved by management

b) Resources of internal auditing department are efficiently and effectively employed.

c) Director should have statement of purpose, authority and responsibility

2.10

Contd…

d) Director of Internal Audit should have plans to carryout the responsibility. The planning process involve.

i. Goals

ii. Audit work schedules

iii. Staffing plans and financial budgets

iv. Activity reports.

2.10

Policies and Procedures

• The Director of internal auditing should provide written policies and procedures to guide the audit staff as they essential to guide the audit staff in consistent compliance with the department’s standards of performance.

2.11

Personnel Management and Development• The programme of personal

development should provide for:i. Developing written job description for audit staff

ii. Selecting qualified and competent individuals.

iii. Continuing educational opportunities for each internal auditors.

iv. Appraising performance of each internal auditor at least annually

v. Providing counsel to internal auditors on their performance and professional development.

2.12

External Auditors

• The Director of Internal Auditors should coordinate internal and external audit efforts to ensure adequate audit coverage and minimize duplicate efforts,Coordinating efforts involves:-

a) Periodic meeting to discuss mutual interest.

b) Access to each other’s audit programme and working papers

c) Exchange of audit reports and management letters

d) Common understanding of audit techniques, methods and terminology.

2.13

Quality Assurance

• The Director of Internal Auditing should maintain a quality assurance programme to evaluate the operations of the internal auditing department. A quality assurance programme include the following elements:-

a) Supervisionb) Internal reviewsc) External Reviews

2.14

• Auditing standards of IAAD provides that in determining the extent and scope of audit, auditor should study and evaluate the reliability of internal control. The internal auditing is one of the important wing of internal control mechanism in any organization of the Government. In case this wing is not properly functioning, it affect the other controls. IAAD as external auditor should examine the weakness and comments on this appropriately

2.15

Contd….

In India the traditional approach of internal auditing is still continuing though some progressive organizations have adopted best practices of internal auditing recognized internationally.

2.15