Chapter 26 - Internal Governmental and Operational Auditing

Internal audit coso n role in risk management n

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+ Internal Audit - COSO n Role in Risk Management n Internal auditing professional standards require the function to monitor and evaluate the effectiveness of the organization's risk management processes. n Internal auditors may help companies establish and maintain Enterprise Risk Management processes. n Internal auditors also play an important role in helping companies execute a SOX 404 top-down risk assessment. n Role in Corporate Governance n One of the "four pillars" of corporate governance (the other pillars being the Board of Directors, management, and the external auditor). n Helping the Audit Committee perform its responsibilities effectively. n Role is accomplished primarily through participation in meetings and discussions with members of the Board of
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+ External Auditors Relying on Internal Auditors’ Work n External auditors when performing the audit have to decide whether to rely on the work done by internal auditors. n Effective Internal Auditors – Lower CR n How to Evaluate Effectiveness of Internal Auditors: n Auditors independent of the operating entities evaluated suggest effective IA function. n Competent and well trained. n Have performed relevant audit tests of the internal controls and financial statements.
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+ Operational Audit
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+ Operational Audits n Operational audits deal with effectiveness and efficiency of the company. n Three major differences between operational and F/S audit: Differences Operational Audit F/S Audit Purpose of the Audit Emphasize effectiveness and efficiency of operations Emphasize whether historical financial information is correctly recorded Distribution of Reports Management is primary user External users of F/S Inclusion of Nonfinancial Areas Included Usually not included
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+ Operational Audits n Effectiveness of Operations n Establish criteria for effectiveness n Meeting those criteria n Test how well criteria is met during an audit n Efficiency n Set criteria n usually lower cost (with no loss of effectiveness) n Establish whether criteria is met n Outcome of Audit – recommend improvements
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+ Governmental Audit
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+ Governmental Audit n Federal and state governments employ their own auditing staff.
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