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THE INTERNAL AUDITING PROCESS

1. SELECTION OF THE AUDIT CLIENTS

1. Internal Audit Plan

2. Management/Board Requests

Developing Annual Internal Audit Plans

Standard 2010 – Planning


The chief audit executive must establish a risk-based plan to determine the priorities of
the internal audit activity, consistent with the organization’s goals.

1. Identify Audit Universe

2. Rank Potential Audit Clients According to Audit Priority

Risk is a combination of:


1.

2.

The formulation of risk may be expressed mathematically as:


The internal auditors for a transportation company investigated four areas of that
company. These areas (and their potential impacts) were:

Potential Internal
Audit Area Loss Controls
Collections of accounts receivable $7,800,000 Excellent
Purchase of fuel from wholesale suppliers for the
company’s fleet of trucks $36,000,000 Excellent
Sale of used trucks at auctions $3,000,000 Good
Purchase of advertising in the mass media $2,000,000 Poor

1. Based on amount of potential impact, how would you rank the risk of the four
areas?

2. Using the following probabilities associated with the quality of internal control,
how do your rankings change?
Internal Control Probability of Loss
Excellent .02
Good .25
Fair .75
Poor .85

Audit Area Risk


Collections of accounts receivable
Purchase of fuel from wholesale suppliers for the
company’s fleet of trucks
Sale of used trucks at auctions
Purchase of advertising in the mass media

[Source: Internal Auditing: Principles and Techniques, Ratliff, et al]


3. Selection of Audit Clients for a Budget Period – limited by:

a.

b.

4. Develop Internal Audit Plan that includes:

a.

b.

c.

2. PLANNING

3. PERFORMING

4. COMMUNICATING

5. EVALUATION OF THE ENGAGEMENT


ANALYTICAL PROCEDURES

Analytical procedures:

Analytical procedures are useful in identifying:

1.

2.

3.

4.

5.

Analytical audit procedures include:

1.

2.

3.

4.

5.

Example: The internal auditors of a large university were assigned to audit the student
aid office. Two audit questions were:

1. Are student loans and student scholarships growing adequately to meet student
demands and to attract top scholars?

2. How efficiently are student loans and scholarships being administered in terms of
cost to the university?

What comparisons would you make to identify potential areas to investigate? What
data would you use? What would you compare that data to?