7/27/2019 Audit by Javed Siddiqui
1/44
Internal Audit & ManagementInternal Audit & ManagementEffectivenessEffectiveness
v u
Exe c utive Dire c to r, SECP
7/27/2019 Audit by Javed Siddiqui
2/44
What Internal Audit is ?What Internal Audit is ?
Evolution of Internal AuditEvolution of Internal Audit Ever one is an Internal Auditor !Ever one is an Internal Auditor !
Why IA is so important for PSEWhy IA is so important for PSE
Role of IARole of IA 3 Es3 Es
Factors impacting IA effectivenessFactors impacting IA effectiveness
Governance IssuesGovernance Issues
Dos & Don'tsDos & Don'ts
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
22
7/27/2019 Audit by Javed Siddiqui
3/44
AnAn inde endentinde endent ob ectiveob ective assuranceassurance
activity.activity.
Designed to add value and improve anDesigned to add value and improve an
organization's operations.organization's operations.
It helps an organization accomplish itsIt helps an organization accomplish its
,,disciplined approach to evaluate, anddisciplined approach to evaluate, andimprove the effectiveness of riskimprove the effectiveness of risk
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
33
management, control, and governancemanagement, control, and governance
processes.processes.
7/27/2019 Audit by Javed Siddiqui
4/44
IA is a catalyst for improving anIA is a catalyst for improving anorganizations effectiveness and efficiencyorganizations effectiveness and efficiencyy prov ng ns g an recommen a onsy prov ng ns g an recommen a ons
based on analyses and assessments ofbased on analyses and assessments ofu ru r ..
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
44
7/27/2019 Audit by Javed Siddiqui
5/44
-,
systems were first instituted by organizedbusinesses and governments as far backas 4000 B.C.
e nee or an n ca ons o au s canbe traced back to public finance systems
the City States of Italy, etc., all of whichdeveloped a detailed system of checks and
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
55
coun erc ec s.
7/27/2019 Audit by Javed Siddiqui
6/44
Interestingly, the scope of these early
modern internal audits; an examination ofthe correctness of accounting records andan eva ua on o e propr e y o ac v es.
control over the activities of theorganization.
Such broad emphasis was not to reappear
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
66
7/27/2019 Audit by Javed Siddiqui
7/44
references, railroad companies arecredited being the first modern employersof internal auditors.
ey were t t e as trave ng au tors .
ur ng e a er par o e cen urythese first real internal auditors becamecommon.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
77
7/27/2019 Audit by Javed Siddiqui
8/44
, ,
and complexity, Management found itim ossible to visuall observe all theoperations in their respective areas of
responsibility.
A critical need emerged for separate internal
accounting information used for decision-making and evaluating the efficiency of work
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
88
performed for the business.
7/27/2019 Audit by Javed Siddiqui
9/44
challenges, special staff people wereappointed to review and report on;
What ? happening
Why ? probe
These people came to be known as internalauditors.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
99
7/27/2019 Audit by Javed Siddiqui
10/44
Summing up, the collective effect of
growing transaction complexity and volume; owners remoteness from transactions source;
technical expertise required to review and
summarize business activities in a meaningfulway;
procedural discipline necessary for being thee es and ears of mana ement,
All contributed to the creation of an IAdepartment within business organizations.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exe c ut ive Dire c to r, SECPExe c ut ive Dire c to r, SECP
1010
7/27/2019 Audit by Javed Siddiqui
11/44
Started as an internal business function
payroll fraud, loss of cash, and otherassets.
Scope quickly extended to the verification.
Later on raduall moved from an auditf o rmanagementemphasis to an audito fmanagement approach.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
1111
7/27/2019 Audit by Javed Siddiqui
12/44
The year 1941-- a turning point in thedevelopment of internal auditing
Two significant events occurred; One, publication of the first major book on the
subject by Victor Z. Brink.
Two, 24 individuals joined together to formThe Institute of Internal Auditors USA (IIA).
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
1212
7/27/2019 Audit by Javed Siddiqui
13/44
,
business effectiveness.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
1313
7/27/2019 Audit by Javed Siddiqui
14/44
7/27/2019 Audit by Javed Siddiqui
15/44
Who is the best Internal Auditor ?
Lets have a show of hands
The First Auditor General of Pakistan ?
The President of IIA USA ?
The President of Chartered Institute of
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
1515
7/27/2019 Audit by Javed Siddiqui
16/44
n ess you con ne s compan on o yoursto deep slumber, its always there to reportou all our ille itimate acts !
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
1616
7/27/2019 Audit by Javed Siddiqui
17/44
Usually have large spectrum of
stakeholders concerned
en ea s w pu c money
v v u rv v ry
efficiency in service delivery
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
1717
7/27/2019 Audit by Javed Siddiqui
18/44
Governance issues
Opportunities of pilferages
O erate in an increasin l com lex
and challenging environment.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
1818
7/27/2019 Audit by Javed Siddiqui
19/44
Increasing demands and expectations ofthe community, government and the.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
1919
7/27/2019 Audit by Javed Siddiqui
20/44
Initially, administrative procedure with a
focus on compliance to ensuring goodgovernance.
The era of transactional audit all financial -
The role later increased to cover the
internal control environment.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
2020
7/27/2019 Audit by Javed Siddiqui
21/44
enhanced the role of IA.
Board Audit Committees formed &.
risks within organizations and measuringtheir risk appetite (risk based audits).
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
2121
7/27/2019 Audit by Javed Siddiqui
22/44
Mandatory for listed companies to have anIA function
Public sector entities required to havemore transparency and moreaccountability since they spend taxpayer
.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
2222
7/27/2019 Audit by Javed Siddiqui
23/44
the new accountability, governance andcontrol era.
It is an element of a stron ublic sectorgovernance foundation.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
2323
7/27/2019 Audit by Javed Siddiqui
24/44
resource on internal control, it should notbe a substitute for a strong internalr y .
response to risks.
As is true for all internal auditors, publicsector internal auditors assistor anizations in im rovin their
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
2424
operations.
7/27/2019 Audit by Javed Siddiqui
25/44
IA Role in Corporate GovernanceBoard of Directors & Committees
Review of financial statements prior totheir approval by the BOD.
Review of the Co.s statement on internalcon ro sys ems y u omm ee pr orto endorsement by the Board of Directors.
Review of management letter of external
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
2525
thereto
7/27/2019 Audit by Javed Siddiqui
26/44
IA Role in Corporate GovernanceBoard of Directors & Committees
Consideration of major findings of internalinvestigations and management'sresponse t ereto.
e n erac ve o e su ec ogovernance, bringing best practices ideasabout internal controls and risk
management processes to auditcommittee members.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
2626
7/27/2019 Audit by Javed Siddiqui
27/44
7/27/2019 Audit by Javed Siddiqui
28/44
7/27/2019 Audit by Javed Siddiqui
29/44
IA Role in Corporate GovernanceMonitoring
Consideration of any other issue ormatter as may be assigned by theBoard of Directors.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
2929
7/27/2019 Audit by Javed Siddiqui
30/44
Governance Issues.Governance Issues.
functionfunction
Is operationally independent.
Is appropriately positioned in the entitys
governance framework
Is business focused rather than only a
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP
3030
required skill set
G IG I
7/27/2019 Audit by Javed Siddiqui
31/44
Governance Issues.Governance Issues.
functionfunction
More experienced staff for operational /management audit, less experienced for.
and balanced, and are linked to the risksin the entity.
Undertakes all audits in accordance with
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3131
specified auditing standards.
G IG I
7/27/2019 Audit by Javed Siddiqui
32/44
Governance Issues.Governance Issues.
functionfunction
Has the confidence of key stakeholders, ,
Audit Committee and senior management.
Provides an annual assessment, based oninternal audit work undertaken, of the
e ec veness o e en y s sys em ointernal controls.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3232
7/27/2019 Audit by Javed Siddiqui
33/44
Governance Issues.Governance Issues.
Key characteristics of a good IAKey characteristics of a good IA
Advises the Audit Committee of patterns,
internal audit work
Regularly informs the Audit Committee ofprogress in the implementation of agreed
interna an externa au it an ot errelevant report recommendations
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3333
7/27/2019 Audit by Javed Siddiqui
34/44
10 main Problems of IA in PSE10 main Problems of IA in PSEa Malaysian studya Malaysian studyFACTORSFACTORS OccrOccr RankRank %%
ac o u aac o u a ..
Does not have top mgmt supportDoes not have top mgmt support 1919 22 13.113.1
Lack of coo erationLack of coo eration 1717 33 11.711.7
Lack of audit staff trainingLack of audit staff training 1515 44 10.310.3
Lack of independenceLack of independence 1515 44 10.310.3Lack of audit staff competenceLack of audit staff competence 1313 55 99
Audit finding not pursued by mgmt.Audit finding not pursued by mgmt. 1111 66 7.67.6
Lack of ex erienced audit staffLack of ex erienced audit staff 1010 77 77
Low grading of position of Head of IALow grading of position of Head of IA 88 88 5.55.5
Negative perception about IANegative perception about IA 55 99 3.43.4
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3434
Limited / Lack of IA resourcesLimited / Lack of IA resources 44 1010 2.82.8
7/27/2019 Audit by Javed Siddiqui
35/44
Factors influencing effectiveness of IA in PSEFactors influencing effectiveness of IA in PSEa Malaysian studya Malaysian study
FACTORSFACTORS OccrOccr RankRank %%
Internal audit qualityInternal audit quality9090 11 48.448.4
Support of top managementSupport of top management 4545 22 24.224.2
Adequate resourcesAdequate resources 2525 33 13.413.4
Coo eration from auditeesCoo eration from auditees 1313 44 77
Interaction with auditInteraction with auditcommitteecommittee
1313 44 77
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3535
7/27/2019 Audit by Javed Siddiqui
36/44
Efficiency .
Effectiveness..doing the right thing
conomy
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3636
Effi i / ff tiEffi i / ff ti
7/27/2019 Audit by Javed Siddiqui
37/44
Efficiency v/s effectiveness measuresEfficiency v/s effectiveness measures
Balanced scorecardsector
Efficiency Effectiveness
Financial resultsFinancial results Channel costs?Channel costs?
Online contributionOnline contribution
(Business value)?(Business value)?
Online contributionOnline contribution
(indirect)?(indirect)?
Profit contributedProfit contributed
Customer ValueCustomer Value Online reach (uniqueOnline reach (uniquevisitors as % of potentialvisitors as % of potentialvisitors)visitors)
Cost of ac uisition orCost of ac uisition or
Sales and sales perSales and sales percustomercustomer
New customersNew customers
cost per salecost per sale
Customer propensityCustomer propensity
Customer satisfactionCustomer satisfactionratingsratings
Operational processesOperational processes Conversion ratesConversion rates
Average order valueAverage order value
Fulfillment timesFulfillment times
Support response timesSupport response times
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3737
7/27/2019 Audit by Javed Siddiqui
38/44
Efficienc
Operational efficiencyare things being doner g y
uantum of resources used in erformance
Time & motion study
BPR to improve efficiency
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3838
7/27/2019 Audit by Javed Siddiqui
39/44
The 3 EsThe 3 Es
How effective are the operationsright things
Are the operations generating desired results
Operational risks identified and mitigated
Are there any un-identified lost opportunities
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3939
7/27/2019 Audit by Javed Siddiqui
40/44
Econom
The main focus of every business
Un-economical operations lead to business
failures
Constant evaluation to identify un-economical
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exe c ut ive Dire c to r, SECPExe c ut ive Dire c to r, SECP4040
7/27/2019 Audit by Javed Siddiqui
41/44
Dos
Maintain objectivity at all times.
Develop your ability to distinguish, but
dont distinguish !
Use management by walking technique.
Be friendly.
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP4141
7/27/2019 Audit by Javed Siddiqui
42/44
Donts
Dont try be know all type.
Dont recommend a policy measure or aprocedure.just comment !
Dont be confined to your office chamber
Dont try to become a Terror
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP4242
And last but not the least
7/27/2019 Audit by Javed Siddiqui
43/44
Best Internal Auditor
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP4343
7/27/2019 Audit by Javed Siddiqui
44/44
!
Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,
Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP4444
Top Related