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Module D

Module D. Internal Audits, Governmental Audits, and Fraud Examinations. Interna l Auditing Defined. Independent and objective obtained by reporting responsibilities Assurance and consulting activity Adds value and improves an organization’s operations

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Module D

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  1. Module D Internal Audits, Governmental Audits, and Fraud Examinations Module D

  2. Internal Auditing Defined • Independent and objective • obtained by reporting responsibilities • Assurance and consulting activity • Adds value and improves an organization’s operations • Helps an organization accomplish its objectives • A systematic, disciplined approach to evaluate and improve the effectiveness of • risk management, • control, and • the governance process Module D

  3. Internal Audit Overview • Over 185,000 Internal Audit Professionals in 190 countries • 125,000 CIAs • Service in all types of industries, governments, and not-for-profit organizations • Outsourcing segments of CPA firms Module D

  4. Opportunities in Internal Auditing? • Career for those students not wishing to go for the 150 hours to sit for CPA Exam • Profession without a busy season • Opportunity to step into management • Travel/no travel • Can work for the corporation or a professional services firm • Can work for local, state, and federal governments Module D

  5. Salaries (Robert Half) Module D

  6. Find out what’s working and what’s not Management’s eyes and ears Look at the organization with fresh eyes Look beyond the financial statements • e.g., obsolete inventory Advocate for improvements Raise red flags What do Internal Auditors Do? Module D

  7. Internal Audit vs. External Audit Basically- External auditors audit financial statements Internal Auditors audit business systems Module D

  8. Internal Audit vs. External Audit • Risk Focus • Internal auditors focus on ALL business risks • External auditors focus only on risks related to financial reporting • Standards • external: GAAS • internal: International Standards for the Professional Practice of Internal Auditing (IIA standards) Module D

  9. Internal Audit Perspective • Internal auditors focus on • value added • being proactive • being customer-focused • being creative • utilizing all business perspectives • requires that the auditor understands the complete management process Module D

  10. Helpful Objective Focused and Determined Intellectual curiosity Decisive Balanced and fair Broad based business education Technical audit and accounting skills Technical skills related to the auditee Professional/interpersonal skills Communication skills Leadership skills Emphasis on continuing education Self-Motivation Internal Audit Skills Module D

  11. Types of Internal Audits • Financial related audits • internal auditors do not audit quarterly or year-end financial statements • these audits usually focus on auditing a part of the financial reporting system that may be considered a potential problem area for the next external audit Module D

  12. Types of Internal Audits • Operational audits • term is sometimes used synonymously with internal audit • auditors’ study of business operations for the purpose of making recommendations about the effective and efficient use of resources, achievement of objectives, and compliance with company policies • operational audits involve • identifying current risks that need to be managed • considering possible future risks • evaluating systems of internal control • measuring quality of performance and comparing to best practices Module D

  13. Types of Internal Audits • Performance audits • little or no difference between operational and performance audits • an examination of a program, function, operation, or management system to assess whether the entity is achieving economy, efficiency and effectiveness in the employment of available resources • can measure efficiency, effectiveness, or achievement of program outcomes • difficult to identify measurement criteria Accounting 408 Module D

  14. Types of Internal Audits • Compliance audits • The degree the organization conforms to policies, procedures, laws, and regulations • The audit focuses on the detailed testing of conditions requiring compliance Module D

  15. Types of Internal Audits • Environmental audits • determining that the organization's environmental control systems are ensuring compliance with regulatory requirements and internal policies • e.g., determining that hazardous materials are being handled and disposed of in accordance with environmental laws and regulations • identifying areas of cost savings • in handling hazardous materials • using more environmentally friendly packaging materials (i.e., recyclable) Module D

  16. Types of Internal Audits • Sustainability audits • Growing area • Corporate social responsibility • pollution • societal impact • political impact • Establishing a new program or expanding an existing program • Identify risks • e.g. regulation, changing social environment, technology • Establish measurements • Assist in improving sustainability Module D

  17. Types of Internal Audits • Quality audits • determining whether the company’s products meet the standards created by management or outside standards • usually for manufacturing companies • relates to customer satisfaction of company’s products and services • whether products are provided in a timely manner • changing customer requirements, etc. Module D

  18. Types of Internal Audits • Assistance for external audit • External auditors may use the work of internal audit • testing controls • testing account balances • preparation of workpapers (PBC schedules) Module D

  19. Types of Internal Audits • Consulting engagements • internal auditors know more about the company than anyone else • e.g., you visit multiple similar functions (i.e., distribution centers, manufacturing facilities, stores, etc.) • apply their knowledge of the company and best practices to consulting with departments or divisions of the company Module D

  20. CIA Exam • CIA candidates must hold a degree • Available through computer-based testing at more than 500 locations worldwide. • Offered in Arabic, Chinese (simplified), Chinese, English, French, German, Hebrew, Indonesian, Italian, Japanese, Korean, Polish, Portuguese, Russian, Spanish, Turkish, and Thai. • Can take the exam when 90% completion of bachelor’s degree has been reached • To obtain certification • experience requirement • maintain CPE Module D

  21. CIA Exam • Part 1 – Internal Audit Basics 125 questions | 2.5 Hours • mandatory guidance from the IPPF; internal control and risk concepts; as well as tools and techniques for conducting internal audit engagements. • Part 2 – Internal Audit Practice 100 questions | 2.0 Hours • managing the internal audit function; the strategic and operational role of internal audit and establishing a risk-based plan; the steps to manage individual engagements (planning, supervision, communicating results, and monitoring outcomes); fraud risks and controls. • Part 3 – Internal Audit Knowledge Elements 100 questions | 2.0 Hours • governance and business ethics; risk management; organizational structure, including business processes and risks; communication; management and leadership principles; information technology and business continuity; financial management; and the global business environment. Module D

  22. Governmental Auditing • Audits must be performed in accordance with • GAAS and • Generally Accepted Government Auditing Standards (GAGAS) • Yellow Book Standards • Audits conducted by governmental auditors and by CPA firms Module D

  23. Governmental Auditing • In addition to financial statement audit, auditor must also examine and report upon: • Compliance with Laws and Regulations • Effectiveness of the Entity’s Internal Control • Compliance with the Specific Requirements of Individual Federal Financial Assistance Programs • Compliance with Requirements Applicable to All Federal Financial Assistance Programs Module D

  24. Governmental Auditing • Usually three reports • Report on the financial statements • Report on the auditee’s internal control • Report on auditee’s compliance with applicable laws and regulations • More reports required under Single Audit Act Module D

  25. Governmental Auditing • Under Single Audit Act • required for entities who receive specified levels of financial assistance from the federal government • auditor must issue the same reports as those issued in a GAGAS audit (opinion on financial statements and internal control, report on compliance with laws and regulations) and in addition • for compliance part of audit, OMB Circular A-133 identifies guidance to classify programs as high or low risk, and as type A or B • then further rules identify which programs must be audited Module D

  26. Review Questions for Discussion • Module D D.1 D.2 D.3 D.4 D.5 D.6 D.8 D.9 Module D

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