Transcript Chapter 5: Internal Audit Process

Chapter 5: Internal Audit Process
ACCT620 Internal Auditing
Otto Chang
Professor of Accounting
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Internal Auditing Process
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Selection of auditee (select riskiest area)
Audit planning
Preliminary survey of operations
Internal control description and analysis
Expanded tests of control system
Develop findings and recommendations
Reporting
Follow-up
Evaluation
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Step 1: Selection Of The Auditee
(Chapter 6)
 Audit Plan Based On Risk Assessment
(Systematic)
 Ad Hoc Audits
 Auditee Requests
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Step 2: Audit Preparation
(Chapter 7)
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Tentative Overall Purpose and Scope Of Audit
Review of Previous Audit Files
Selection of Audit Team
Preliminary Communication with Auditee
Preparation of Preliminary Audit Program
Planning the Audit Report
Obtaining Approval of The Audit Approach
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Step 3: Preliminary Survey
(Chapter 8)
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Opening Conference
Tour
Document Study
Written Description
Analytical Review, If Appropriate
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Step 4: Initial Study of Internal
Control (Chapter 8)
 Controls Description
 Walk-Through of Transactions or Decision
Process
 Limited Testing
 Evaluation of Internal Controls
 Risk Assessment
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Step 5: Expanded Testing
(Chapter 9)
 Detailed Review of Operations and Controls
 Tests of Auditor’s Compliance with Control
Systems
 Evaluate Design of Control System
 Evaluate the Effectiveness of Control
System
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Step 6 Findings And
Recommendations (Chapter 9)
 Findings
 Conditions actually observed
 Criteria used to evaluate the conditions
 Effects (Risk) of the observed problems
 Cause of the problems
 Recommendations
 No Changes
 Improve Current Controls
 Adding Insurance to Ensure against Risks
 Required Rate of Return to Reflect Risks
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Step 7 Reporting (Chapter 10)
 Written
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Audit Objectives
Audit Scope
General Procedures
“Findings”
Recommendations
 Personal (Oral) Presentation
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Step 8 & 9: Follow-Up and
Evaluation (Chapter 11)
 Follow-Up
 Auditee Response
 Management’s Follow-Up
 Auditor’s Review
 Evaluation
 Evaluation of Audit Approach, Techniques, Etc.
 Auditor Performance Reviews
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An Outline of Audit Working
Paper
1. Table of contents
2. Planning checklist
3. Authorization form
4. Preliminary memo to the auditee
5. A cross-referenced audit report, imterrim
memoranda, and follow-up report
6. Auditee’s written response to audit findings
and recommendations
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Audit Working Paper-continued
7. Review notes on the working papers
8. Audit program
9. Summary finding sheets (Chapter 9)
10. Preliminary survey
A. Minutes of opening conference
B. Summary of observations made during the on-site tour
C. Notes from study of background materials
D. Written descriptions of the auditee’s operation
E. Analytical review worksheet
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Audit Working Paper--continued
11. Review of Internal Control:
A. Completed internal control questionnaires
B. Flowcharts and descriptions of internal control
C. Work sheets on limited tests
D. Internal control matrix
12. Worksheet from expanded tests
13. Miscellaneous papers
14. Follow-up working papers
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Format of Working Paper
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Title
Preparer and reviewer’s date and initials
Complete cross-indexing
Use of tick marks
Explanation of legends
Auditor’s conclusion and recommendation
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