Internal Audit: A Comprehensive Guide
Internal Audit in Organizations
1. Emergence of Internal Audit
The initial role of internal audit focused on verifying accounting records, protecting assets, and preventing fraud.
2. Evolution of Internal Audit
The second stage arose due to the creation of the Securities and Exchange Commission in the US, requiring confidence in financial information.
3. Institutionalization of Internal Audit
The third stage emerged with the establishment of the Institute of Internal Auditors, promoting professional development and establishing governing policies.
4. New Types of Audits
The fourth stage introduced administrative and operational audits.
5. Concept of Internal Audit
Internal audit is an independent assessment function that examines and evaluates organizational activities to provide support and control.
6. Beneficiaries of Internal Audit
Internal audit serves all members of the organization.
7. Nature of Internal Audit
Internal audit is an inspection function that evaluates the adequacy and effectiveness of other controls.
8. Purpose of Internal Audit
- Support organizational members in effectively carrying out their activities.
- Promote effective control at a reasonable cost.
9. Support Provided by Internal Audit
Internal audit provides analysis, appraisals, recommendations, advice, and information on reviewed activities.
10. Importance of Independence
Independence allows auditors to make impartial and unbiased judgments, which is essential for their credibility.
11. Organizational Position of Internal Audit
The internal audit group’s position should ensure compliance with assigned audit responsibilities.
12. Limitations of Internal Auditors
Internal auditors should not design, install, or operate systems or establish procedures to maintain objectivity.
13. Scope of Internal Audit
Accounting records reflect operational activities and compliance with policies and regulations.
14. Efficiency-Oriented Attitude
Internal auditors should strive to improve efficiency.
15. Performance Review for Efficiency
Internal auditors can enhance efficiency by reviewing implicit functions.
16. Synergistic Approach to Efficiency
This approach analyzes how elements are interconnected to achieve objectives.
17. Viability Approach to Efficiency
This approach identifies mechanisms to improve organizational performance.
18. Goals and Objectives Approach to Efficiency
Objectives and goals should be clearly defined and resources allocated accordingly.
19. Performance Evaluation for Efficiency
Internal auditors assess the effectiveness of implemented functions.
20. Analysis for Efficiency
Internal auditors evaluate results to identify areas for improvement.
21. Information System for Efficiency
Information systems should be flexible, timely, accurate, and reliable.
22. Questioning for Efficiency
Internal auditors should continuously question processes to identify potential improvements.
23. Auditor’s Attitude in Efficiency Pursuit
Auditors should maintain a positive and constructive approach while avoiding exaggeration or negativity.
24. Internal Audit Coverage
Internal audit should cover the review and assessment of internal control systems and the execution of assigned responsibilities.
25. Approaches to Internal Audit Coverage
- Review of financial and operational information accuracy and integrity.
- Review of compliance with policies, regulations, and contracts.
- Review of asset safeguarding measures.
- Assessment of resource utilization efficiency.
- Review of operations and programs to ensure alignment with objectives.
26. Definition of Internal Control
Internal control is a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
- Effectiveness and efficiency of operations
- Reliability of financial reporting
- Compliance with applicable laws and regulations
27. Objectives of Internal Control
- Operational effectiveness and efficiency
- Financial reporting reliability
- Compliance with laws and regulations
28. Administrative Audit
Administrative audits evaluate compliance with policies, plans, procedures, and regulations, ensuring adherence to proper functioning.
29. Operational Audit
Operational audits assess the effectiveness, efficiency, and economy of resource utilization, aiming to improve operational efficiency.
30. Operational Structure of Internal Audit Department
The operational structure includes work programs, audit programs, and indexes, tailored to the specific focus of each audit type (administrative, operational, or financial).
31. Planning Considerations for Audit Work Program
- Priority and potential interventions
- Requirements of administration and stakeholders
- Focus of internal and government auditors
- Time allocation for emergencies and unplanned requirements
32. Audit Program
An audit program outlines the steps and actions required for an audit, specifying the procedures to be applied.
33. Papal Index Work
Assigning index keys allows for easy location and retrieval of questionnaires within a record or file.
34. Time Control for Auditors
Establishing time control aims to track hours spent on audit work and non-audit activities.
35. Distinction between Audit Hours and Non-Audit Hours
Audit hours are productive hours spent on audit work, while non-audit hours are when auditors are not assigned to audit tasks.
36. Operating Cycle
An operating cycle is a continuous flow of operations that form a global cycle with a starting point and endpoint.
37. Function
A function is a set of activities performed within a cycle to process transactions in a logical and sequential manner.
38. Composition of a Function
A function consists of a core activity, a background activity, and a subsequent activity.
39. Transaction
A transaction is an economic event that affects the financial structure of an entity.
40. Sequence for Operational Audit Work
- Identify activities within a function.
- Identify functions within an operating cycle.
- Establish connections between cycles to form the global operating cycle.
41. Objectives of Internal Audit
- Support organizational members in carrying out their activities effectively.
- Promote effective control at a reasonable cost.
42. Internal Audit Function
- Provide support services for all organizational members.
- Promote organizational efficiency.
43. Properties of Internal Audit
- Expansion into other areas of operation and administration.
- Updates to optimize review and evaluation of operations and administration.
44. Approaches to Promoting Efficiency
- Feature Review
- Synergistic Approach
- Cost Approach
- Goals and Objectives Approach
- Results Approach
- Factor Analysis
- Information System
45. Independent Exercise of Internal Audit
- Auditors must work independently with freedom and objectivity.
- Organizational position and objectivity ensure independence.
- Objectivity is a state of mind that auditors must maintain during audit work.
46. How Internal Auditors Should Work
- With freedom and objectivity
47. Objectivity
- The state of mind that internal auditors must have during the course of their audit work.