Issues in Internal and External Auditing (L1).pptx

Internal audit

1. OTHMAN YEOP ABDULLAH GRADUATE SCHOOL OF BUSINESS BDAK8033 ACCOUNTING PRACTICE AND REGULATION AUDITING

2. The Audit Committee The audit committee is a sub-committee of the board of a company, which has oversight responsibilities to monitor the integrity of the financial reporting system and the internal control system of the company

3. The Audit Committee https://www.youtube.com/watch?v=343kcHZRMH8

4. Shared responsibilities in the financial reporting process

5. Theoretical framework of audit

6. Audit Cycle

7. Audit Quality Framework

8. Audit Report Providing an independent and expert opinion on the fairness of financial statements through an audit is the most frequent attestation service An audit provides users of financial statements reasonable assurance that the statements are in conformity with GAAP. The standard report meets the standard by: (1) stating that the audit was performed in conformity with generally accepted auditing standards and (2) expressing an opinion that the client’s financial statements are presented fairly in conformity with generally accepted accounting principles.

9. Audit reporting Components of finding report: Criteria Conditions Causes Effects Recommendations and/or Action Plans 1. Report title 2. Audit report address 3. Introductory paragraph 4. Scope paragraph 5. Opinion paragraph 6. Name of CPA firm 7. Audit report date

10. Types of Opinions 1. An unqualified opinion—standard report. This report expresses a “clean opinion” and may be issued only when the two conditions listed in the preceding section have been met, and when no conditions requiring explanatory language exist. 2. An unqualified opinion—with explanatory language. In certain circumstances explanatory language is added to the auditors’ report with no effect on the auditors’ opinion. 3. A qualified opinion. A qualified opinion states that the financial statements are presented fairly in conformity with generally accepted accounting principles “except for” the effects of some matter. 4. An adverse opinion. An adverse opinion states that the financial statements are not presented fairly in conformity with generally accepted accounting principles. 5. A disclaimer of opinion. A disclaimer of opinion means that due to a significant scope limitation, the auditors were unable to form an opinion or did not form an opinion on the financial statements.

11. Materiality A misstatement in the financial statements can be considered material if knowledge of the misstatement would affect a decision of a reasonable user of the statements.

12. Internal’s Audit role The Internal Auditor is not meant to be an adversary but rather a partner. According to the Institute of Internal Auditors, Internal Auditing provides: Assurance that the organization is operating as management intends (Governance, Risk, Control). Insight for improving controls, processes, procedures, performance, and risk management; and for reducing expenses and managing & controlling revenues (Catalysts, Analyses, Assessments.) Objective assessments of operations (Integrity, Accountability, Independence.) ***Source: Institute of Internal Auditors, “Value of Internal Auditing Presentation to Stakeholders”

13. Internal Audit Roles And Functions

14. Common challenges with audit reporting Scoping is often not formally communicated to Auditees Reports are too voluminous and complex and in some cases too short Time taken to publish reports – completion of fieldwork to reporting Reports that are not supported by evidence Drafting / sometimes English – too much jargon Over emphasis of issues Personalizing reports Negative language Poor flow – non critical issues emphasized and critical issues left out etc

15. Common Risk Considerations Priority of Agency Head or Management and reasons; Cause-Suspicion of fraud, improper conduct, blatant disregard for procedures, suspected misuse or improper use of assets; Financial Exposure-Size of auditee or amount of agency assets at risk, liquidity of assets (easy theft), transaction volume; Significance of area to agency operations; Changes to laws, rules and regulations; Adequacy, effectiveness & quality of internal controls; Major changes in technology, operations, programs, systems or controls; New programs or initiatives; Complexity of operations; Rapid growth of the Division;

16. Competence, experience or time in position of management for the area or recent key management personnel changes; Competence, experience or time in position of staff, recent key personnel changes or high staff turnover; Significance and number of previous internal and/or external audit findings; Time since last audit; Political or press exposure or general public impact considerations; Extent or changes to the computerization of the area; Ethical climate such as pressure by management on area to meet objectives; Low employee morale or problematic personnel; Changes in capabilities or experience of audit staff; Audit plans of external auditors; Opportunities to achieve operating benefits. 18 Risk Considerations Cont.

17. Audit and risk assessment