INTERNAL AUDIT

COMMUNICATIONS
Explain the importance of effective interviewing skills
in internal auditing, and describe the recommended
approach to managing conflict during an audit .
In most internal audits, interviews with operating personnel and others
play an important role as a prime means of gathering audit evidence. The
audit interview is the primary means of gathering facts, opinions, and
ideas. While evidence obtained from interviews will usually require
substantiation from other sources, interviews remain a valuable source of
audit evidence and often determine the direction that the audit will take.
Interviews are used throughout the internal audit process:
at the planning stage, to gather background information to assist in
planning the nature, extent, and timing of the testing to be carried out
Explain the importance of effective interviewing skills
in internal auditing, and describe the recommended
approach to managing conflict during an audit .
• during the main part of the evidence-gathering stage, to provide
evidence as to the actual conditions in existence
• at the end of the evidence-gathering phase, to confirm the auditor’s
understanding of the situation and obtain clarification of issues
• at the end of the audit (exit conference), to discuss issues,
recommendations, and the audit report with the auditee manager
 Identify the purpose and the
objectives of internal audit
reporting.
The effectiveness of the internal audit department is judged largely on the
value of its audit reports. In practice, this value is measured by the quantity
and perceived quality of reports issued. An internal audit report should
accomplish five important objectives:
• Document the results of audit work.
• Provide a framework for management action.
• Present the auditee’s views.
• Provide a basis for follow-up.
• Express an opinion on the adequacy of governance, risk management,
and control within the organization.
 State the IIA Standards and
guidelines for internal audit reports.
The IIA Performance Standards 2400 to 2450 and their related
advisories cover the IIA’s prescriptions regarding audit performance
standards.
There are eight guidelines:
1. A signed, written report should be issued when the audit
examination is complete.
2. The internal auditor should discuss conclusions and
recommendations with appropriate levels of management before
issuing the final report.
 State the IIA Standards and
guidelines for internal audit reports.
3. Reports should be accurate, objective, clear, concise, constructive,
complete, and timely.
4. Reports should present the purpose, scope, and results of the audit
and, where appropriate, an expression of the auditor’s opinion.
Opinions must consider the expectations of senior management and
the board. The opinions must be supported by sufficient, reliable,
relevant, and useful information.
 State the IIA Standards and
guidelines for internal audit reports.
5. If an opinion is expressed on the organization as a whole, the auditor must
consider the expectations of senior management and the board. The overall
opinion must include the following: the scope and time period, consideration
of related audit projects, the risk or control framework used as a basis for the
opinion, and the reasons for an unfavorable opinion.
6. Reports may include recommendations for potential improvements and
acknowledge satisfactory performance and corrective action.
7. The auditee’s views about audit conclusions and recommendations may be
included in the report.
8. The chief audit executive or a nominee should review the final audit report
before it is issued and decide to whom it will be distributed.
 Develop the information that should be included in an
internal audit report, including the main factors the
internal auditor considers in developing recommendations.
Typically, audit reports contain the following information, presented in
this order:
background information
purpose and scope of the examination
summary of major observations
detailed observations and recommendations
management comments
conclusions (may not appear as a separate section)
acknowledgment
 Develop the information that should be included
in an internal audit report, including the main
factors the internal auditor considers in
developing recommendations.
There are five elements to an individual audit observation:
nature of the observation (What actually happens?)
criteria used to assess performance (What should happen?)
cause of negative observations (Why does performance not meet the
standard?)
effect of negative observations on operations (What risk does it pose
to the organization achieving its objectives?)
auditor’s recommendations (What can be done to improve the
situation?)
 Develop the information that should be included
in an internal audit report, including the main
factors the internal auditor considers in
developing recommendations
In presenting audit observations and developing recommendations for
improvement, the auditor considers the following factors:
• circumstances that help or hinder the organization in meeting criteria
• alternative courses of corrective action
• specific effects, both positive and negative, that may arise if the
recommendations are adopted
• feasibility and the cost-benefit ratio of adopting a recommendation
 Explain why the report (including recommendations)
should be reviewed with management before its release .

• The main reason is to ensure that it contains no errors or

misrepresentations. Errors of fact in audit reports do a great deal of
damage to the credibility of the auditor and the audit department.
• Reviewing the report also provides an opportunity to determine if
there are any differences of opinion with management concerning the
significance of any of the observations so that an effort can be made
to come to a mutual agreement before the report is issued.
• It also creates goodwill because the auditee manager will be aware of
the audit observations and be able to prepare a response before
higher management has received the report.
 Draft an internal audit report.
The characteristics of a professional report include the following:
• accuracy
• objectivity
• clarity
• conciseness
• Constructiveness
 Draft an internal audit report.
• completeness
• Timeliness
• neutrality of tone
• relevance
• persuasiveness
• proper grammar, spelling, and sentence structure
 Explain why it is important for internal auditors to
monitor the implementation of their
recommendations.
The purpose of the audit is to identify risks and weaknesses in order to
make management aware of the need for action to mitigate the risks
and correct the weaknesses. If the internal auditor does not monitor
management’s actions, senior management and the board will not
know whether management has carefully considered the audit
observations and recommendations and, where appropriate, taken
corrective action to reduce the level of residual risk to which the
organization is exposed.
 Determine the steps in a monitoring program.

1. Determine the scope of the follow-up.

2. Prepare the follow-up program.
3. Carry out the follow-up program.
4. Assess the extent of corrective action taken and progress made.
5. Review follow-up files.
6. Report results of the follow-up.