2. The purpose of this document
• The purpose of this document is to inform Kaplan Finance of
the benefits of having an internal audit department. I will
also discuss what the job of an internal audit department is.
3. What is internal audit?
• “Internal auditing is an independent, objective
assurance and consulting activity designed to
add value and improve an organization’s
operations.
• It helps an organization accomplish its objectives
by bringing a systematic, disciplined approach to
evaluate and improve the effectiveness of risk
management, control, and governance processes.
(Definition of internal auditing, n.d.)
4. Why are internal audits necessary?
• Requirement of SOX in some situations
• Required by codes of good practice
• Provides an independence check on the control systems of a
company
• Management control
(Audit and compliance, n.d.)
5. What factors affect the need for
internal audit?
• The scale, diversity and complexity of the company’s activities
• The number of employees
• Cost/benefit considerations
• Changes in the organization structures, reporting processes or
underlying information systems
• Changes in key risks could be internal or external in nature
• Problems with existing internal control systems
• An increased number of unexplained or unacceptable events
(Audit and compliance, n.d.)
7. Reviewing accounting and internal
control systems (financial audit)
• This is the traditional view of internal audit
• The internal auditor checks the financial controls in the company
• If there is an external auditor, the internal auditor may share work with
them
• The internal auditor makes comments on whether the appropriate
controls exist and if they are working correctly
• In this work area, the internal auditor does not manage risk
• They simply report on controls
(Audit and compliance, n.d.)
8. Assisting with the identification of
significant risks
• The internal auditor starts to work on risks
• They may be asked to investigate areas of risk management, with
specific reference on how the company identifies, assesses and
controls significant risks from both internal and external sources.
(Audit and compliance, n.d.)
9. Reviewing the economy, efficiency and
effectiveness of operations (operational
audit)
• Also called the value for money, or VFM,
audit
• The auditor checks to see if a particular
activity is
1. Cost effective (economical)
2. Uses the minimum inputs for a given
output (efficient)
3. Meets its stated objective (effective)
• There are four main areas where an
operational audit is commonly used:
• Procurement
• Marketing
• Treasury
• Human resources
(Audit and compliance, n.d.)
10. Examining financial and operating
information
• The internal auditor ensures that
reporting of financial information
is made on a timely basis
• They also ensure that the
information in the reports is
factually accurate
(Audit and compliance, n.d).
11. Special investigations
• The special investigations
audit investigates other areas
of a company’s business
• Special investigations auditors
investigate things such as
• Complaints of fraudulent activity
• Wrongful receipt of payment or
services
(Massachusetts, 2016)
12. Reviewing compliance with laws and
other external regulations
• This objective is particularly relevant regarding SOX
(Sarbanes-Oxley Act)
• The internal auditor carries out detailed work to ensure that
internal control systems and financial reports meet stock
exchange requirements.
(Audit and compliance, n.d.)
13. Types of audits
• Financial audit
• Operational audit
• Project auditing
• Value for money audit
• Social and environment audit
(Audit and compliance, n.d.)
14. In conclusion
• Internal audit is an important function in any company
• By having an internal audit, a company reduces the risk of errors
• There are many types of audits and purposes for having those audits
15. References
• Definition of internal auditing. (n.d.). Retrieved fromThe Institute of
Internal Auditors: https://na.theiia.org/standards-
guidance/mandatory-guidance/Pages/Definition-of-Internal-
Auditing.aspx
• Audit and compliance. (n.d.). Retrieved from Kaplan Financial
Knowlege Bank:
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Audit%2
0and%20compliance.aspx
• Massachusetts, C. o. (2016). Bureau of special investigations.
Retrieved from Mass.gov: http://www.mass.gov/auditor/about-the-
state-auditors-office/bureau-special-investigations.html
Notes de l'éditeur
Welcome to this PowerPoint presentation about Internal Audit. In this presentation we will be learning about internal audit, their purpose, what they do, and who they are.
First, let’s define internal audit. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. The department helps their organization accomplish its objectives by brining a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
Why might a company need an internal audit? One reason might be that it is a requirement of SOX. Another reason is that it may be required by codes of good practice. An internal audit also provides and independence check on the control systems of a company. Lastly, it provides management control.
There are many factors that affect the need for internal audits. The scale, diversity, and complexity of the company’s activities is one of these factors. When a company has lager, diverse, or complex activities, there is a higher need to monitor them due to an increase in opportunity for something to go wrong. Another factor is the number of employees the company has. Management needs to be certain that the benefits of an internal audit outweigh the cots of one. Changes in the structures, reporting processes or underlying information systems means that there is a change in the complexity of operations and risk. In regards to changes in key risks, there may be a new product introduced, the entering of a new market, or a change in the industry that may cause the need for an internal audit. Problems that already exist in control systems signify the need for increased monitoring. Lastly, an increased number of unexplained or unacceptable events, including system failures, are an example of internal weakness.
There are 6 roles of the internal audit department. The following slides will discuss in detail what these roles are.
Reviewing accounting and internal control systems is the traditional view of internal audit. The internal auditor checks the financial controls within the company. If there is also an external auditor working with the company, the internal auditor may choose to share work with them. The internal auditor makes comments on whether the appropriate controls exist and if they are working correctly. In this area of work, the internal auditor does not manage risk. They simply report on controls.
In the work area of assisting with the identification of significant risks the internal auditor starts to work on risks. They may be asked to investigate areas of risk management with specific reference on how the company identifies, assesses and controls significant risks from both internal and external sources.
The audit that reviews the economy, efficiency and effectiveness of operations is also known as the operational audit, or the value for money audit, also called the VFM audit. The auditor checks to see if a particular activity is cost effective, if it uses the minimum inputs for a given output, and meets its stated objective. There are four main areas where an operational audit is commonly used: procurement, marketing, treasury and human resources. The image on the right shows each area of value for money and what it is measured by.
When an internal auditor examines financial and operating information, they ensure that the reporting of financial information is made on a timely basis. They also ensure that the information in the reports is factually accurate.
The special investigations audit investigates other areas of a company’s business. They investigate things such as complaints of fraudulent activity and wrongful receipt of payment or services.
Reviewing compliance with laws and other external regulations is particularly relevant regarding SOX. The internal auditor carries out detailed work to ensure that internal control systems and financial reports meet stock exchange requirements.
This slide goes over some of the types of audits. Financial audits are traditionally the main area of work for the internal audit department. They embrace the tasks of examining records and evidence to support financial and management reporting in order to detect errors and prevent fraud. Operational audits examine and review the business operation, including the effectiveness of controls and identifying areas for improvement in efficiency and performance. Project auditing include best value and IT assignments that look at processes within the organization and ask if things were done right and if the organization achieved value for money. Value for money auditing, as discussed earlier, assesses three main areas: economy, efficiency, and effectiveness. Social and environment auditing looks at the company’s contribution to society and the community. Contributions made may include donations, sponsorships, employment practices, education, health and safety, and ethical investments. There are many other types of internal audits other than those listed here.
In conclusion, internal audit is an important function in any company. By having an internal audit, a company reduces the risk of errors. There are many types of audits, as discussed previously, and the need for them is high.
