Audit Revision

AUDIT REVISION

CHAPTER 19 – INTERNAL AUDIT

INTERNAL AUDITOR 🡪 independent and consulting activity designed to improve a company’s operations. Helps organisations use systematic and disciplined approaches to improve risk management, control and governance process.

NOT LEGAL REQUIREMENT 🡪 only listed companies, public sector e.g. NHS (where companies are funded by public money). This is mandatory because:

• Accountability – funded through taxpayer’s money so needs to be properly accounted for to ensure the public how the money has been spent
• Regularity – to use the funds for the purpose for which they were intended e.g. capital funds cannot be used for revenue

ROLE OF INTERNAL AUDITOR 🡪 looks how companies manage risk by:

• Identify problem areas
• Recommend ways of improving risk management & control systems
• Monitor corporate governance issues e.g. firm wide values, acceptable behaviours
• Reviewing operational procedures e.g. value for money, HR process
• Reviewing compliance with laws and regulation
• Examination and evaluation of financial & non-financial information

Internal auditors and required to give an opinion on whether internal controls are working as intended e.g. management policies, management of business risks.

WORK THE INTERNAL AUDIT DEPARTMENT DO:

• Reviewing the policies and procedures for managing business risk
• Reviewing compliance procedures
• Monitoring the operation of the internal control procedures including identifying potential problem areas and recommending improvements
• Carrying out audits of information produced from the management information system
• Value for money (VFM) assignments
• Advising on information systems development

INTERNAL VS EXTERNAL

EXTERNAL AUDITORS RELYING ON INTERNAL?

🡪 ISA 610 ‘Using the work of internal auditors’

🡪 Problematic for external auditor to rely on internal auditor because internal works for the company so to what degree of dependency do they have?

It is important for external to be able to evaluate whether internal have the skills needed to carry out the work, this needs to be built into the plan on whether to use internals work.

Communication between the two parties and regular meetings is deemed important.

Once the work is done, it is reviewed by external to consider if the work is been properly supervised and reviewed when completed.

External will compare with work carried out by their own staff in a similar area, any issues should be properly resolved.

...