TOPIC 1- Overview of IA

TOPIC 1OVERVIEW OF INTERNAL AUDITING

INTERNAL AUDITINGAUD 571

Learning Objectives* After going through this chapter, you should be able to: Provide an overview of internal audit profession Differentiate internal auditor and external auditorDescribe the evolution of internal audit practice Illustrate methods used to measure internal auditing performance Describe factors that enhance the image of internal audit profession

Defining Internal Auditing*An independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization. The objective of internal auditing is to assist members of the organization in the effective discharge of their responsibilities. Internal auditing furnishes them with analyses, appraisals, recommendations, counsel, and information concerning the activities reviewed. The audit objective includes promoting effective control at a reasonable cost.

An independent, objective assurance and consulting activity designed to add value and improve an organizations 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.

Institute of Internal Auditors (IIA)s Board of Directors have redefined internal auditing:

The Keywords*Independence and objectivityAssurance and consulting activitySystematic and disciplined approach Add valueRisk managementControlGovernance

Every keyword has its significance in internal audit LEARN THEM!!

Internal Auditor Vs. External Auditor*

INTERNAL AUDITOREXTERNAL AUDITORReporting responsibilityReports to the audit committee/board of directorsReports to the shareholdersStatusMost of the time is an organizations employee (at times, it can be outsourced).Is an independent contractor, third party who is external to the organization.StakeholderServes needs of the organizations. Serves third parties who need reliable financial performance.Independent statusIs independent of the activities audited, but is ready to respond to the needs and desires of all elements of management.Is independent of management and the board of directors both in fact and mental attitude.Responsibility towards fraudIs directly involved with the prevention and detection of fraud in any form or extent in any activity reviewed.Is incidentally concerned with the prevention and detection of fraud in general, but is directly concerned when financial statements may be materially affected.

Internal Auditor Vs. External Auditor*

INTERNAL AUDITOREXTERNAL AUDITORScope of work Evaluate governance, control and risk management processes to assure the accomplishment of entity goals and objectives.Review the financial statements to ensure that the financial statements are free from material misstatements and express opinion whether the financial statements present true and fair viewTiming and frequency of audit Reviews activities continually by focusing on future events Reviews records supporting financial statements periodically (usually once a year) and focuses on the accuracy and understandability of historical events as expressed in financial statementsProfessional qualificationNot necessary, but may acquire Certified Internal Auditor (CIA) Compulsory to be a member of Malaysian Institute of Accountants (MIA) and be granted audit license by the Ministry of Finance (MoF) before can be recognized as Chartered Accountant (CA)

Types of Internal Audit*Financial AuditOperational AuditManagement AuditCompliance AuditInformation System/Information Technology Audit Fraud/Forensic Audit

These are not all, but should cover most of the internal audit activities undertaken by the internal auditors

The Rise of Internal Audit Profession*

THENNOWConcentrate on attesting to the accuracy of financial mattersProvide services that include examination and appraisal of control and performance of a organization

Function as junior sibling to independent accounting professionNow, it established itself as a distinctive discipline

Once acted as auditees adversaryNow, it has guide to improve operations, seeking to maintain a coorperative working relationship with clients and auditees

Evolution of Internal Audit in Malaysia*In 1970, Ministry of Defence set up its internal audit unit.

In 1979, the Federal Government issued a circular expanding the establishment of IA to other ministries with a broader role which include operational audit.

In 1993, the Ministry of Finance requested all government-owned organizations to set up an audit committee:

To protect the government interest as a shareholder To oversee the internal audit function in these organizations.

Internal auditing in private sector

Mainly focus on evaluating the efficiency and effectiveness of internal control systems and compliance Since 1993, it was mandatory for all public listed organizations to establish audit committee to monitor accountability, governance, independence and objectivity of the internal audit department. Bursa Malaysia Listing Requirements, amended in 2008, mandated public listed organizations to set up internal audit function.

Roles of IIAM *Affiliated to The Institute of Internal Auditors Inc. (USA)

Services provided: Certification offering certification for Certified Internal Auditors (CIA), Certification in Control Self-Assessment (CCSA), Certified Financial Services Auditor (CFSA), Certified Government Auditing Professional (CGAP)Professional development providing quality and "value for money" internal audit trainingGuidance and advisory providing research, technical advisory and responding to technical enquiriesSurveys conducting surveys on various topics in collaboration with, among others, Bursa Malaysia, MICG, KPMG and Ernst & Young.Quality assurance services providing assistance and expertise for Quality Assurance and Improvement Program (QAIP)

IIA Research FoundationResearch arm of the Institute of Internal Auditors Inc. (USA) Conducting research related to IADisseminate information to internal auditors in Malaysia to keep abreast with latest news, best practices and development of IA in Malaysia and internationally

*Professional education and trainingProfessional discipline: The Professional Practice FrameworkDirecting reporting channel to ACAwakening shareholders activismSupport and recognition by the regulatorsGlobal audit scandalsCommitments of IIAMBroad scope of IA function

Factors Reimaging Internal Audit Profession

END TOPIC 1