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AUDIT PROCESS Main phases of Audit Process Planning Field work (Evidence Gathering) Report writing Audit Follow up

PHASE 1: PLANNING Stages in Planning of Audit 1. Engagement This could be a request from the authority or a routine audit. Appointment of audit team: The appointed team (by Audit Executive) should do the following: Conduct team first meeting Document preparations for audit Set engagement objectives (audit objective) Determine the scope of audit. 2. Conduct in office review Review documents (criteria) related to the client (laws, regulations, guideline etc.) Advantages of in-office review Gain good understanding of the client Help to establish audit risk and materiality of issues (relevant criteria). Help to identify criteria and establish compliance requirements Clarify audit objectives (operating objectives). Enable the team to prepare relevant questions to the client during entrance meeting. Help the team to understand well the criteria (what is to be done; by whom and when).

Determine who will be the contract person from the client (it should not be the director or person of too high level). Brief overview of the process from preliminary survey to reporting. Tentative audit event timeline estimated dates of fieldwork, interim meeting, exit meeting, audit report (draft and final) and follow-up audits. How audit findings will be handled (resolution of minor findings; agreement on the action plan to implement the audit recommendations etc.) Collective review of draft report. Method of distribution of final audit report. Identification of areas of special concern by client (Note: Do not get involved in functional or operational activities of the client). Working hours, access to records, available work area, clients work deadline requirements (i.e. Auditor should fit into the clients office routine with minimal disruption to client). Arrange for tour of the facility for familiarization. Arrangement for auditors to meet other personnel who will be working with during audit.

ii) Identification of potential areas for improvement :Identifying areas for audit emphasis (risk area). These include: Areas identified/documented in risk. Register. Area of high possibility of fraud or mis management Where there is large volumes of transactions. Where management has expressed concerns. Where prior audit disclosed major weakness /deficiencies. iii) Confirmation: Getting evidences from third parties where necessary. (iv) Planning the detailed audit Preparation of audit program in areas that worth for further audit Audit program should be recorded It basically show, what is to be done; by when; by who; for how long and how will it be done. This is a link between preliminary survey and field work. Mechanics for preparation of Audit Program Setting of Audit Objective: Start from operating objectives followed by operating procedures eg. Operating objective: To ensure procurement of right goods/service at right, right price, at right time and right quantity and quality). Operating Procedure: On requisition, the ordering dept should clearly spell out the goods/service to be procured proper specification). Audit Objective: To ascertain whether the procurement of goods/services was done properly to ensure right goods/service, right price, right time and right quality and quantity. Determine the scope of Audit Program (objective of Internal Control System) and key risk from the same. Develop audit objective from operating objective/target; requirement of the law (legislative requirements) terms of reference in special audit assignment [see item (i) above]. Benefits/Advantages of Audit Program Set a systematic approach to audit. Gives specific steps to be taken by auditor. Provide precise instruction to obtain precise audit information. Provide for more focused audit hence serve time for audit engagement. As a bases of or duty/assignment to audit assistants. Help the supervisor to monitor the audit Provide summary of work to be done.

Note: Effective Communication at the beginning of audit engagement will significantly influence the atmosphere in which the entire audit is conducted. 5. Preliminary survey This refers to the process for gathering information without detailed verification on the activity being examined (audited) Why Preliminary Survey To understand well the activity under review. Identify significant areas that worth special emphasis. Obtain relevant information for use in actual audit. Determine whether further audit is necessary (nature, timing and extent of detailed audit work). Note: i) No fieldwork should be started unless preliminary survey has been conducted. Survey work may be more extensive for activities that are audited for the first time than for areas that were audited previously. Phases of Preliminary Survey i)Familiarization Obtaining significant back ground information and practical working knowledge of applicable laws, regulations policies, and procedures, management and financial controls, organizations statues and staffing; and unusual challenges faced. Documents to be reviewed includes; previous audit reports/programs, working papers, laws, regulations, operating manuals, organization charts, financial statements, flow charts, budget, operating reports etc.

3. Contact and meeting client Clients needs to be notified on the audit at least 5 (five) working days before entrance meeting. Notification should be formal (eg. Engagement letter) Contents of engagement letter Letter reference Date of letter Source of audit (Annual plan, Management request etc.) General audit objective Names of audit team and team leader Official contacts of team leader Time and location of entrance.

4. Entrance Conference Should be conducted prior to preliminary survey Head of Internal audit should meet with key personnel of the client Points to be discussed in entrance meeting Scope and objective of audit Emphasize that the purpose of audit is to add value to the organization.

PHASE 2: FIELD WORK (EVIDENCE GATHERING) Is the systematic process of gathering evidence about entitys operations, evaluating it and found out whether those operations meet the acceptable standards. Here auditor perform the procedures as in the audit program by doing the following: Concentration on transaction testing and informal communication.

Determine and evaluate whether internal controls are operating properly and in manner described by management.

Filling of 5 Attribute form/sheet This is the sheet/form where audit findings are recorded. It is a key tool for ensuring effective report writing. Summary of contents of the form include: Audit objective: The purpose of audit Attributes of the findings: Condition, criteria, cause effect and recommendation. Client personnel with who discussed: Name, title, dept, date of discussion, and name of auditor. Comments by client personnel: Relevant comments made by client personnel with whom the finding was discussed. PHASE 3: REPORTING This refers to the communication between the Auditor and the Client on the results of the audit engagement (It is the product of audit engagement). It is the most visible output that provides feedback to the client and other stakeholders on the result of engagement. It is an opportunity for audit showing how it can add value to the organization. It provide the management with the opinion on the adequacy of internal controls systems. Quality of the Internal Audit report Internal Audit Report must be:Accurate - ie. Free from errors and distortions (purpose clearly communicated). Objective - ie. Fair, impartial and unbiased. Clear - ie. Easy to understood and logical. Concise - ie. Straight to the point without unnecessary details. Constructive - ie. Help the client to improve its performance (practical solution). Complete - ie. Should include all the relevant facts. Timely - ie. Well timed to enable timely decision on proposed recommendations.

Evidence Defn: Refers to all matters that supports a point/position assumed by auditor Qualities of an evidence Evidence must be: Suffient ie. Adequate and convincing. Competent ie. Reliable and best attainable. Relevant ie. Supporting the observations and recommendations; consistent with objectives. Useful ie. Help the organization to meets its objective. Types of evidence Physical direct inspection/observation documented as memoranda, charts, maps, photographs etc. Documentary - created information eg. Accounting records, invoices, letters contracts etc. Testimonial - responses to inquires interview (needs to be confirmed). Analytical - analysis or verification of information computations, comparisons of operations; standards, law/regulations, and evaluation of physical or documentary information. Field work Audit Checklist Before going to fieldwork the audit team should ensure to have the following: Audit program (each team member should have a copy). Responsibility of each team member (segregation of duties). That audit client is aware in advance. Adequate working tools (working papers, folders, stationery, calculator, laptop, camera etc.). Copies of relevant laws, regulation, standards, etc. relating to the audit area. Documentation of the fieldwork results The field results (step of activities) will be recorded in the audit working paper. The reference should be made in the working paper with the audit program to maintain consistency. The working papers are used to arrive to the audit finding. Exit Meeting This is the meeting between audit team and the client at the end of fieldwork. The objective of the meeting is to share and discuss the key noted findings. It is the important forum for audit team to get confirmation on the obtained/noted findings; responses from the management and the tentative corrective actions/action plans. The minutes of the meeting should be well documented and signed by both parties and these forms parties of the working papers.

Findings and Recommendations: For each finding, describe the condition; criteria; cause and effect/impact. Recommendations should address the cause to improve operations, and is shown in a separate sub-paragraph. Conclusion/Summary: This show the auditors evaluation of the effect of the findings on the activity audited (The overall implications). Should focus on audit objectives and any qualifications. Can also focus on clients accomplishment in relation to previous findings, compliance and achievements of operations (Here the auditor can show the noted strengths of the client). Compliance plan: Agreement between auditor and client on the implementation of the auditors recommendations as part of management responses. It show area of improvement, responsible person, action to be taken and time frame, name and signature of both parties (client & auditor). [where possible the compliance plan can be signed between Head of Internal Audit and the Head of audited entity]. Acknowledgement: General statement to show the appreciation for cooperation/assistance extended by client to the audit team during time of audit (Note: it should not mention specific individuals). Signature: Signed after the audit examination completed. Should be signed by the authorized internal auditor and showing his/her name after his/her signature. Appendixes: Any relevant information that clarifies the finding/ observation can be shown as appendix to the report. This must be cross-referenced in the report by number or letters (eg. Appendix 1 or Appendix A)

PHASE 4: AUDIT FOLLOW-UP Sometime referred as Recommendation Audit. It assumes all steps like any other audit engagement. The objective is to review and verify the Implementation of audit recommendation. It is the last phase of audit engagement. However The Audit Engagement is completed/closed when all recommendation has been fully implemented.

Format of Internal Audit Report The standard audit report should have the following key sections Executive Summary: showing all aspects of the report but in a nutshell. It should be able to give the snapshot of the whole report, but it should not too much summarized to lose the meaning. Introduction: Show the background information on area under the audit, establishment, objective, function etc. (The mandate of the internal audit in auditing such area). Objectives: Show the audit focus, expected output (what it will achieves (could generals and specific ones). Scope of Audit: description of auditable areas, timing (period covered and when the audit conducted). Compliance statement: describe that the audit activity was conducted In accordance with professional practice of auditing standards (whether local, international or both). Approach or Methodology use: describe the criteria followed; standards used; work done in testing; documents used (reviewed) etc.