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Unformatted text preview: 1 Chapter 26 Internal and Governmental Financial Auditing and Operational Auditing Review Questions 26-1 Internal auditors who perform financial auditing are responsible for evaluating whether their company's internal controls are designed and operating effectively and whether the financial statements are fairly presented. This responsibility is essentially the same as the responsibility of external auditors who perform financial audits. The two types of auditors are also similar in that they both must be competent and must remain objective in performing their work and reporting their results. Despite these similarities, the role of the internal auditor in financial auditing differs from that of an external auditor in the following ways: Because internal auditors spend all of their time with one company, their knowledge about the company's operations and internal controls is much greater than the external auditor's knowledge. Guidelines for performing internal audits are not as well defined as the guidelines for external auditors. Internal auditors are responsible to the management of the companies that they work for, while external auditors are responsible to financial statement users. Because internal auditors are responsible to management, their decisions about materiality and risks may differ from the decisions of external auditors. 26-2 The two categories of standards in the IIA International Standards for the Professional Practice of Auditing are (1) Attribute Standards and (2) Performance Standards. The Attribute Standards are: Purpose, authority, and responsibility Independence and objectivity Proficiency and due professional care Quality assurance and improvement program The Performance Standards are: Managing the internal audit activity Nature of work Engagement planning Performing the engagement 26-1 Communicating results Monitoring progress Managements acceptance of risks 26-3 External auditors are considered more independent than internal auditors for the audit of historical financial statements because their audit report is intended for the use of external users. From an internal user's perspective, internal auditors are employees of the company being audited. Internal auditors can achieve independence by reporting to the board of directors or president. The responsibilities of internal auditors affect their independence. The internal auditor should not be responsible for performing operating functions in a company or for correcting deficiencies when ineffective or inefficient operations are found. 26-4 Governmental financial audits are similar to audits of commercial companies in that both types of audits require the auditor to be independent, to accumulate and evaluate evidence, and to apply generally accepted auditing standards (GAAS). The two types of audits are different because governmental financial audits also require the auditor to apply generally accepted governmental...
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This note was uploaded on 10/07/2011 for the course ACCOUNTING 4220 taught by Professor Brown during the Spring '11 term at UMBC.
- Spring '11