chapter 25 assurance services: internal auditing and comprehensive auditing

25 - 1Copyright 2003 Pearson Education Canada Inc.

CHAPTER 25Assurance Services: Internal Auditing

and Comprehensive Auditing


What is What is internal auditinginternal auditing??


Many organiza-tions employinternal auditors to help the organ-ization achievegreater efficiency and effectiveness.



Many organiza-tions employ internal auditors to help the organ-ization achievegreater efficiency and effectiveness.


In somecorporations, internal auditors

also determine whether the financialstatements are fairly presented.


How do How do internalinternal and and externalexternal auditing differ? auditing differ?


Internal auditors usually focus on improving the efficiency andeffectiveness of their employer.



Internal auditors usually focus onimproving the efficiency and effectiveness of their employer.

External auditors (public accountingfirms) usually focus on the fairness ofthe financial statements of their clients.



There may be There may be very littlevery little overlap overlap between the responsibilities of between the responsibilities of internal and external auditors.internal and external auditors.

internalauditors

externalauditors


internalauditors

externalauditors

Are external auditors allowed to use Are external auditors allowed to use internal auditors for direct assistanceinternal auditors for direct assistance

during an audit of financial statements?during an audit of financial statements?


Are external auditors allowed to use Are external auditors allowed to use internal auditors for direct assistanceinternal auditors for direct assistance

during an audit of financial statements?during an audit of financial statements?

YES,if external auditors are

confident of internal auditors’:- competence- independence- objectivity


WhyWhy would an audit client be willing to would an audit client be willing toallow external auditors to use internalallow external auditors to use internal

auditors for direct assistanceauditors for direct assistanceduring an audit of financial statements?during an audit of financial statements?


WhyWhy would an audit client be willing to would an audit client be willing toallow external auditors to use internalallow external auditors to use internal

auditors for direct assistanceauditors for direct assistanceduring an audit of financial statements?during an audit of financial statements?

loweraudit fees


What is What is operational auditingoperational auditing??


What is What is operational auditingoperational auditing??

The purpose ofoperational auditing is

to enable an organizationto achieve greatereffectiveness and

efficiency.


What are the differences What are the differences between between operational auditingoperational auditing

and and financial auditingfinancial auditing??




- purpose of the auditoperational

auditingfinancialauditing

purpose? purpose?




- purpose of the auditoperational

auditingfinancialauditing

purpose:promotion ofefficiency andeffectiveness

purpose:determinationof statement

fairness




- purpose of the audit- distribution of the reports

operationalauditing

financialauditing

distribution? distribution?




- purpose of the audit- distribution of the reports

operationalauditing

financialauditing

distributed tomanagement

distributedto statement

users




- purpose of the audit- distribution of the reports- inclusion of nonfinancial areas

Operational auditscover any aspect of efficiency

and effectiveness in anorganization.


What are the types of What are the types of operational auditsoperational audits??



- a functional audit deals with one or more functions in an organization, e.g., cash receipts



- a functional audit deals with one or more functions in an organization- an organizational audit deals with an entire organization and how efficiently and effectively functions interact



- a functional audit deals with one or more functions in an organization- an organizational audit deals with an entire organization and how efficiently and effectively functions interact- special assignments arise at manage- ment’s request and can take a variety of forms


What are the most What are the most important qualities of an important qualities of an

operational auditoroperational auditor??




- independence




- independence- competence


What are the phases of What are the phases of an an operational auditoperational audit??



- the planning phase is similar to that of a financial audit except for the extreme diversity among operational audits

December

?



- the planning phase is similar to that of a financial audit except for the extreme diversity among operational audits- the evidence accumulation and evaluation phase is also similar to that of a financial audit



- the evidence accumulation and evaluation phase is also similar to that of a financial audit- the reporting and evaluation phase differs from that of a financial audit because the diversity of audits results in carefully-worded reports displaying a lack of standardized wording


Which organizations Which organizations must follow the Public must follow the Public Sector Accounting and Sector Accounting and

Auditing Board’s Auditing Board’s Recommendations?Recommendations?


Which organizations must Which organizations must follow the PSAAB follow the PSAAB

Recommendations?Recommendations?Public Sector Entities:- federal, provincial, territorial and local

governments- government organizations- school boards

Not:- business-type organizations- government not-for-profit organizations


What is a Value-for-What is a Value-for-Money Audit?Money Audit?


What is a Value-for-Money What is a Value-for-Money Audit?Audit?

General Standards1. the VFM audit team should collectively

possess the necessary knowledge and competence

Differs from GAAS



General Standards1. the VFM audit team should collectively

possess the necessary knowledge and competence

2. Due care and an objective state of mind

Similar to GAAS



Examination Standards1. adequate planning and proper execution;

proper supervision of team members2. obtain sufficient appropriate audit

evidence

Similar to GAAS



Examination Standards1. adequate planning and proper execution;

proper supervision of team members2. obtain sufficient appropriate audit evidence

3. criteria for evaluating matters subject to audit should be identified and their suitability assessed

Similar to GAAS

Differs from GAAS



Reporting StandardsReport should:- describe the objectives and the scope of audit,

including limitations- state examination was performed in accordance

with recommended standards and included such tests and other procedures as considered necessary- identify the criteria and describe the findings- state the conclusions

Differs from GAAS

chapter 25 assurance services: internal auditing and comprehensive auditing

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