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Issue No.

15, October 2010

Business Intelligence as IA Tool By: R.S. Murali

Internal Audit Recruitment Review By: Tim Sandwell

Global expertise, local knowledge*


PricewaterhouseCoopers provides industryfocused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 154,000 people in 153 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. PricewaterhouseCoopers in the Middle East Established in the region for over 30 years, PricewaterhouseCoopers Middle East network covers 15 countries and has over 2,000 people. Complementing our depth of industry expertise and breadth of skills is our sound knowledge of local business environments across the Middle East. For information about our internal audit, risk and corporate governance services across the Middle East, contact Andrew Garrett, Middle East Internal Audit Leader, andrew.garrett@ae.pwc.com, +971 (0)4 3043100, or visit www.pwc.com/me

*connectedthinking
2008 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Working together on the right track


Greetings! I would like to take this opportunity to extend greetings to all fellow members of the UAE-IAA and express my gratification at the growing participation in the various events we have. What is especially encouraging is the fact that our recent efforts in advocating regular meetings for our members has drawn a good response and so has the interest been kindled in the introduction of selective training courses. The UAE-IAA remains committed to utilize its resources to further its mission and responsibility to its members. This however needs to be enhanced with full cooperation and active participation from its members and officers. At this point, I would like to express my gratitude to volunteers who continue to unselfishly contribute their personal time and talent to the worthy projects and programs of the Institute. As we move towards the end of the calendar year, I would seek your support to the programs and activities of the UAE-IAA through the following:
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4
stnevE tsaP AAI-EAU gniteeM srebmeM

October 2010

neidereM eL eht ta dleh saw gniteem srebmem a ht92 enuJ nO wen fo noitingocer eht saw tneve siht fo thgilhgih ehT .iabuD secitcarP tseB dna sdnerT tneceR` no snoitatneserp dna sAIC sresivda gnidael yb ecnanrevoG dooG dna ytirgetnI ssenisuB no setutitsnI eht no setadpU .snommiS & snommiS dna sksiR lortnoC ,tnediserP AAI-EAU eht yb dedivorp erew seitivitca dna smargorp ward el ffar a osla saw ereht ,noitidda nI .ilA diabO redaqludbA tiduA lanretnI labolG 0102 KOBC eht ni stnapicit rap ykcul eht rof .yevruS

Board of Governors
UAE-IAA Chapter
President:
Abdulqader Obaid Ali
abdulqader.obaidali@dubaiworld.ae

UAE-IAA Events
gniniarT ecnegilletnI laicnaniF
eL eht ta dleh saw ecnegilletnI laicnaniF no margorp gniniart A tnediserP ,adatruoM dayI yb detneserp saw dna iabuD neidereM .ASU ,ymedacA gniknihT nepO ,tnatlusnoC gninraeL dna esuaceb snoisiced laicnani f dab ekam net fo sreganam t rams ynaM laicnani f ezylana dna daer ot woh dnatsrednu ylluf tnod yeht laicnani f htiw laed ot elba eb dluohs sreganaM .stnemetats nrut ,noitamrofni laicnani f tcennoc dna dnatsrednu ,srebmun rieht no yler dna egdelwonk laicnani f otni noitamrofni laicnani f .snoisiced laicnani f esiw ekam ot ecnegilletni laicnani f sreganam gnipleh sdrawot deraeg saw margorp gniniart laicnani f sihT ot woh dna naem yllaer srebmun laicnani f eht tahw dnatsrednu ehT .snoisiced laicnani f ekam yeht nehw erutcip gib eht ta k o o l moCdlroW ,nornE htiw gnorw tnew tahw otni devled osla gniniart gniyler fo ecnatropmi eht sreganam ot detartsnomed dna ocyT dna ni stcaf laicnani f eht tsuj ton dna snoitome dna noitiutni rieht no .meht fo tnorf
0102 rebotcO 4

6
By: R.S.Murali

BI as IA Tool

Message from the President

Board Members:
Abdulrahman Al Hareb
abdulrahman.alhareb@dubaiholding.com

Business Intelligence as IA Tool By: R.S. Murali

Leading organisations are investing in managing information and developing predictive insights to drive sustainable business results. These companies have become masters in Performance Management - going beyond mere users of business intelligence to become the Intelligent Enterprises. 1 Introduction Business Intelligence (BI) is defined as computer-based techniques used in spotting, digging-out, and analyzing hard business such as sales revenue by products or departments or associated costs and incomes. Objectives of a BI exercise include (1) understanding a firms internal and external strengths and weaknesses, (2) understanding the relationship between different data for better decision making, (3) detection of opportunities for innovation, and (4) cost reduction and optimal deployment of resources2. The objectives of the BI stated here would sound extremely familiar for Internal Auditors (IA), whose objectives are in line with these, except that they additionally focus on internal controls. Does this mean that the BI is a tool for IA? This paper attempts to examine this. The Institute of Internal Auditors (IIA) defines Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisations operations. It helps an organisation accomplish its objectives, by bringing in a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes3. The internal audit makes use of data of the client organisation and in order to evaluate and improve the effectiveness of risk management, control and governance processes; and for this purpose depend heavily on the database of the client organisation. Is the database always congenial to the use of the Internal Audit team? Is the database effective and efficient for the evaluation of the risk, control and governance? This paper attempts to explore the role of BI as an effective tool for Internal Audit. The Business Intelligence Systems Components of BI Systems The BI systems are essentially made of three components: Source Systems: These are the hardcore transaction based systems where data is captured while the organisation does its business. The data is generated from functional areas like accounting, sales, production, marketing, human resources, etc. These are stored in the organisations database. The source systems could be part of ERP or residing in distributed functionally with various departments who use their own software/database.

Abdulrahman Ba Saeed Adnan Zaidi


adnan.zaidi@protivitiglobal.ae

Components of BI Architecture4

abdulrahman.basaeed@dubaiworld.ae
By: Jacob Joby Varghese

10
A Life Cycle Cost Summary FINAL PART
Life Cycle Cost (LCC) Analysis helps in advocating reducing life cycle costs for equipments in wide areas within all sectors by showing show/why reliability and maintainability must be included in upfront decisions for strategic and tactical issues of achieving the lowest long term cost on ownership. LCC concepts are resurging presently within global organisations, responsible MNCs with Corporate Social Responsibility (CSR)s in place, including worldwide Government efforts to minimize energy costs. WHY USE LCC? LCC helps change provincial perspectives for business issues, with emphasis on enhancing economic competitiveness, by working for the lowest long term cost of ownership, which is not an easy answer to obtain. Consider these typical problems and conflicts observed in most companies: 1. Project Engineering wants to minimize capital costs as the only criteria; 2. Maintenance Engineering wants to minimize repair hours as the only criteria; 3. Production wants to maximize uptime hours as the only criteria; 4. Reliability Engineering wants to avoid failures as the only criteria; 5. Accounting wants to maximize project net present value as the only criteria, and;
10 October 2010

1. Davenport, Thomas, January 2006, Harvard Business Review 2. BusinessDictionary.com. Retrieved 02 September 2010 3. http://www.theiia.org/guidance/standards-and-guidance/ippf/definition-of-internal-auditing/Retrieved on 02 September 2010 4. Howson, Cindi,2007, Successful Business Intelligence: Secrets to Making BI a Killer App, McGraw-Hill

6 October 2010

Ahmad Dahabiyeh
adahabiyeh@adaa.ae a.alansari@dwc.ae

6. Shareholders want to increase stockholder wealth as the only criteria. Management is responsible for harmonizing these potential conflicts under the banner of operating for the lowest long term cost of ownership. LCC can be used as a management decision tool for harmonizing the never ending conflicts by focusing on facts, money and time. Why should engineers be concerned about cost details for LCC? It is important to help engineers think like MBAs and act like engineers for profit making enterprises. Its all about the money! Economic calculations are well defined but the discount rate is important (US Government 2002). Accounting and finance organisations set internal discount rates (which often change) to make economic decisions easy for engineers. Cash flows into/out of a business. The discounting method summarizes transactions over the life of the investment in terms of present or future dollars. Engineering always want a simple, single value, criteria for a project the answer for LCC is called net present value (NPV). NPV is the present value of proceeds minus present value of outlays. Projects and processes with the greatest NPV is usually the winner. Often for incremental changes on a project or within a plant, you lack enough details to arrive at a positive NPV. Thus many improvement projects must be selected on the least negative NPV values

from many alternatives. So once again, we can have the single number engineers always want its NPV but in this case, its the least negative NPV. Most fixed assets and other projects have a limited useful life. All equipment has a finite life based on both deterioration and obsolescence. The most common depreciation methods is straight line depreciation based on acquisition cost less salvage. Straight line depreciation is based on consumption of a fixed percentage of the equipment cost. Often, straight line depreciation is used for internal accounting reports of profit/loss and for calculating NPV. Income tax rates vary and may require inclusion of state as well as federal taxes. Engineers must be concerned with life cycle costs for making important economic decisions through engineering actions. What goes into LCC? LCC includes every cost that is appropriate and appropriateness changes with each specific case which is tailored to fit the situation. LCC follows a process (Fabryck 1991Appendix A) as shown in Figure 1. The steps are: Step 1- Identify what has to be analyzed and the time period for the project life study along with the appropriate financial criteria. Step 2- Focus on the technical features by

Amir Gergawi

amir.algergawi@du.ae

Badr Mohammed Buhannad


badr.buhannad@difc.ae

16
Audit Week By: Raza Abdulla
Audit Week - By: Raza Abdulla

Karem Obeid Increased attendance of Members Meetings which are free of charge and inclusive of knowledge-sharing sessions;
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karem.obeid@dubaiholding.com

Khalid Halyan

khalidhalyan@dca.gov.ae

Enlisting as a volunteer to strengthen the UAE-IAA Secretariats force towards supporting membership and professional development activities; Participation in scheduled training courses; Knowledge-sharing and contribution to the UAE-IAA newsletter.

Laila Al Humairi

laila.alhumairi@gmail.com

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Mohamed Shehab Al Rammahi


msalrammahi@mopa.ae
By: Tim Sandwell

18
Barclay Simpson Internal Audit Recruitment Review
The background to the financial crisis was in our view reasonably easy to explain. It was caused by cheap money and too much debt. The consequence was increased asset prices which supported more debt, the real risks of which were hidden by financial complexity and, in the case of the GCC, opaque ownership structures. If anyone thought the GCC might be immune when the financial crisis struck, Dubais overheated property market demonstrated it was not. However, unlike Europe, where private debt default has been replaced by the threat of sovereign debt default, there is little such concern within the GCC. It is therefore surprising, on the back of both expansionary fiscal policies and anticipated economic growth of 4% in 2010, how lacklustre the recovery feels. Until recently it was clear that outside of the public sector, unlike other regions of the world, the recovery had yet to reach the corporate governance recruitment market. Perhaps the relative transparency of Western economies is the difference. Although the credit related losses in Europe and the United States were greater, they were also more readily identified and quantified. Identifying and reporting losses provide certainty and allows informed investment decisions to be made. Within the GCC, uncertainty comes from lower levels of transparency and questions about the governance of state owned entities and family owned companies which form the major part of the regions economy. Whilst
18 October 2010

Raza Abdulla

raza.abdulla@emirates.com

they most often have the implicit support of highly solvent sovereign governments, markets are better able to cope with losses rather than uncertainty. In this respect, the lack of adequately developed systems of corporate governance and a legal infrastructure is not helping the region. Recruitment is a form of investment. Companies invest and recruit when they feel confident. Given that effective corporate governance would improve confidence, it is perhaps easy to make a case for building on the investment in governance that was apparent before the financial crisis. The sovereign states that make up the GCC have the opportunity to do so. Economic growth is forecast to accelerate further in 2011 and survey evidence is emerging that suggests general recruitment patterns are in the process of improving. There is now

a balance of employers that are intending to recruit. However, for all the supposedly sophisticated regulatory regimes and all the sums invested in corporate governance and internal auditing, the credit crisis still happened. This has to be seen as a failure. Governments and regulators around the world have responded to this failure and there have been any number of initiatives. Basel III, the overhaul of bank capital and liquidity standards, is perhaps the most high profile and far reaching of the co-ordinated responses. Incrementally, regulators are looking to make the financial system less risky. It is equally clear, perhaps as a result of regulatory pressure, that since the start of 2010 the financial sector in other regions of the world have responded by investing

Venkataraman The need of the hour is for all of us (now over 300 strong) to come together and put our best foot forward for the common good of the Institute. We would welcome your feedback and recommendations for necessary action of the Board. This will contribute further in realizing the goals of the UAE-IAA Chapter. Abdulqader Obaid Ali President UAE-IAA

Internal Audit Recruitment Review By: Tim Sandwell

venkat@habtoor.com

Newsletter Committee:
Vishal Thakkar
Petrofac

20
Knowledge Update
New on the Horizon: Leases for Real Estate companies
In August 2010 the International Accounting Standards Board and the US Financial Accounting Standards Board published a joint exposure draft on leases, which will have significant implications on lease accounting in the real estate sector if implemented in its current form. A significant overhaul in lease accounting standards has been widely anticipated for some time now. In fact it is over 10 years since the core proposals in this exposure draft (ED or Leases ED) were first made. As expected, the proposed standard, if adopted in its current form, will make significant changes to the current approach to accounting for leases. In summary, it removes the differences between operating and finance leases and brings all lease obligations onto the lessees statement of financial position as a financial liability. For real estate occupiers this is significant. In the past, the majority of property leases were classified as operating leases and so property rentals were treated as an operating expense in the lessees financial statements. Under these proposals lessees would be obliged to bring the net present value of their future lease obligations onto the statement of financial position. http://www.kpmg.com/Global/en/IssuesAndInsights/ A r t i c l e s P u b l i c a t i o n s / P a g e s / N OT H - L e a s e s - f o r- R e a l EstateCompanies.aspx By: Vishal Thakkar

Farah Araj

Guide to Using International Standards on Auditing in the Audits of Small and Medium-Sized Entities
The second edition of this Guide was commissioned by the IFAC Small and Medium Practices (SMP) Committee to assist practitioners on the audit of small and medium-sized entities (SMEs), and to promote consistent application of the International Standards on Auditing (ISAs). While developed by the Canadian Institute of Chartered Accountants (the CICA), the Guide is the full responsibility of the IFAC SMP Committee. The International Auditing and Assurance Standards Board (IAASB) staff and a global advisory panel, with members drawn from a broad cross-section of IFAC member bodies, have assisted in reviewing the Guide. The Guide provides non-authoritative guidance on applying ISAs. It is not to be used as a substitute for reading the ISAs, but rather as a supplement intended to help practitioners understand and consistently implement these standards on SME audits. The Guide does not address all aspects of ISAs and should not be used for the purposes of determining or demonstrating compliance with the ISAs. The Guide is intended to explain and illustrate so as to develop a deeper understanding of an audit conducted in compliance with ISAs. It offers a practical how-to audit approach that practitioners may use when undertaking a risk-based audit of an SME. Ultimately it should help practitioners conduct high-quality, cost-effective SME audits, and in so doing, help them better serve the public interest. It is anticipated that the Guide will be used by member bodies, audit firms and others, as a basis for educating and training professional accountants and students. IFAC member bodies and firms may use the Guide, either as it is or tailored to suit their own needs and jurisdiction. It provides a basis from which member bodies and others can develop derivative products such as training materials, audit software, checklists and forms. http://web.ifac.org/media/publications/5/guide-to-usinginternationa-1/guide-to-using-internationa-1.pdf

National Holding

Mahmoud Ghazzaoui
Deloitte & Touche, (M.E) Emirates Airlines

Knowledge Update By: Vishal Thakkar

Arab Media Outlook: Collaborating for Growth


This groundbreaking report, released by the Dubai Press Club in conjunction with PricewaterhouseCoopers, reviews the current state of Arab media across twelve Arabic-speaking countries. Supported by Dubai Media City, Dubai Studio City and International Media Production Zone, the Arab Outlook focuses on the impact of the global media trends on the Arab Media and predicts the course of events for many aspects of the industry over the next five years. Developments in digital media and the emergence of broadband access and TV delivered directly to mobile devices present exciting growth opportunities for media companies across the Arabicspeaking world. Yet in order to benefit from these opportunities, certain factors must be addressed: the relatively limited availability of affordable broadband access across much of the region; and the lack of reliable audience and readership figures: Conclusions outlined in this report enable us to take an accurate view of the Arab media industry both in quantitative and qualitative terms. http://www.pwc.com/m1/en/publications/Arab_media_ outlook.jhtml
20 October 2010

Meenakshi Razdan

About the Author: Vishal Thakkar is a qualified Chartered Accountant and Certified Internal Auditor. He is currently working with Group Internal Audit department of Petrofac and can be contacted at vishalkthakkar@yahoo.com

Editor:
Manjula Ramakrishnan
UAE-IAA Newsletter welcomes editorial contributions and feedback from readers. Write in to editor@iiauae.org
Affliated to The Institute of Internal Auditors 247 Maitland Avenue Altamonte Springs, Florida 32701-4201 USA +1-407-937-1100 Fax +1-407-937-1101 www.theiia.org Copyright 2008 Disclaimer: It is hereby notified that all opinions, facts or views expressed in this magazine are those of the author and need not necessarily represent the views of UAE-IAA. The advertising of events, courses, products and services in this publication does not imply that they have UAE-IAA endorsement.

2 October 2010

3 October 2010

Contents

Ahmed Al Ansari

Life Cycle Cost Summary: Final Part By: Jacob Joby Varghese

UAE-IAA Past Events Members Meeting


On June 29th a members meeting was held at the Le Meredien Dubai. The highlight of this event was the recognition of new CIAs and presentations on `Recent Trends and Best Practices on Business Integrity and Good Governance by leading advisers Control Risks and Simmons & Simmons. Updates on the Institutes programs and activities were provided by the UAE-IAA President, Abdulqader Obaid Ali. In addition, there was also a raffle draw for the lucky participants in the CBOK 2010 Global Internal Audit Survey.

Financial Intelligence Training (contd)

Financial Intelligence Training


A training program on Financial Intelligence was held at the Le Meredien Dubai and was presented by Iyad Mourtada, President and Learning Consultant, Open Thinking Academy, USA. Many smart managers often make bad financial decisions because they dont fully understand how to read and analyze financial statements. Managers should be able to deal with financial numbers, understand and connect financial information, turn financial information into financial knowledge and rely on their financial intelligence to make wise financial decisions. This financial training program was geared towards helping managers understand what the financial numbers really mean and how to look at the big picture when they make financial decisions. The training also delved into what went wrong with Enron, WorldCom and Tyco and demonstrated to managers the importance of relying on their intuition and emotions and not just the financial facts in front of them.
4 October 2010

MetricStream CEO Addresses UAE-IIA Members on The Changing Face of Internal Audit
Shellye Archambeau, CEO of MetricStream Inc., addressed the UAE chapter of the Institute of Internal Auditors (IIA) in Abu Dhabi on Sunday, September 19, 2010. The event saw Ms Archambeau providing insights on the evolving role of Internal Audit and how internal auditors must redefine their role in this fast-changing business landscape to drive value by expanding their functions to risk management, compliance management, fraud prevention and collaboration with key stakeholder. MetricStream provides a range of world-class Audit management solutions for global corporations to help internal auditors confidently meet these new imperatives and challenges.
5 October 2010

By: R.S.Murali

BI as IA Tool
Introduction Business Intelligence (BI) is defined as computer-based techniques used in spotting, digging-out and analyzing hard business such as sales revenue by products or departments or associated costs and incomes. Objectives of a BI exercise include (1) understanding a firms internal and external strengths and weaknesses, (2) understanding the relationship between different data for better decision making, (3) detection of opportunities for innovation, and (4) cost reduction and optimal deployment of resources2. The objectives of the BI stated here would sound extremely familiar for Internal Auditors (IA), whose objectives are in line with these, except that they additionally focus on internal controls. Does this mean that the BI is a tool for IA? This paper attempts to examine this. The Institute of Internal Auditors (IIA) defines Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisations operations. It helps an organisation accomplish its objectives, by bringing in a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes3. The internal audit makes use of data of the client organisation and in order to evaluate and improve the effectiveness of risk management, control and governance processes; and for this

Leading organisations are investing in managing information and developing predictive insights to drive sustainable business results. These companies have become masters in Performance Management - going beyond mere users of business intelligence to become the Intelligent Enterprises. 1 purpose depend heavily on the database of the client organisation. Is the database always congenial to the use of the Internal Audit team? Is the database effective and efficient for the evaluation of the risk, control and governance? This paper attempts to explore the role of BI as an effective tool for Internal Audit. The Business Intelligence Systems Components of BI Systems The BI systems are essentially made of three components: Source Systems: These are the hardcore transaction based systems where data is captured while the organisation does its business. The data is generated from functional areas like accounting, sales, production, marketing, human resources, etc. These are stored in the organisations database. The source systems could be part of ERP or residing in distributed functionally with various departments who use their own software/database.

Data Warehouse: This is another database specifically created taking into account the decision or reporting requirements. For every organisation, an exclusive data warehouse is created. This warehouse depends upon both the software and the user requirements. The objective of this data warehouse is to enable specifically required and designed reports for the need of users. BI Tools: These are the slicing and dicing tools that generate tailor-made report and analysis. The BI tools make use of data mining techniques and modeling software in order to understand the data behaviour and relationships. Working of BI systems There are several ways to look at the components of a BI system. The following one is a simple step-by-step approach to understanding how a BI system is built up and what it does.

Benchmarking of business be achieved if these gaps are properly performance: This is often done to addressed. make comparison of performance between organisations or within BI Tools and Internal Audit divisions/units within an organisation. BI Tools Dashboards: These are final Data warehousing, online analytical representation of the KPI, generally in processing and data mining are some of a visually attractive form in order to the tools in the IT application to large scale processing and analysis of data. These tools support decision making. are extremely useful for an Internal Audit Decision support systems: Any other professional. Very effective and efficient supportive decision support reports internal audit can be done using these BI are also generated depending on the tools. Some of the essential details in this regard are discussed. requirements. Thus BI systems help the users generate reports and KPI as per their requirements. However, the requirements have to be planned properly and the relationships between the data have to be defined properly. Data Warehousing Data warehouse is a repository of subjectively selected and adapted operational data, which can successfully answer any ad hoc, complex, statistical or analytical queries. Basics of data warehousing design and management are: Data warehouse architectures: the way the data are related and arranged. The understanding of this will enable the IA get total grip of transaction processing. Data marts and data stores: These are sub-sets of the data warehouse. Since the Internal Audit requirements are very specific and may not be as per operational requirements, specific data marts could be built for the purpose of Internal Audit requirements. Data structures and data flow: An understanding of this by the IA will make the audit trail easy and evaluation of control systems will be very efficient. Dimensional modeling: This can be used for audit in depth.

Components of BI Architecture4

BI gaps for IA An Internal Auditor, among other functions, looks at transactions which are Data warehouse development recorded in the source systems. The data and administration: Based on the warehouse that is created as a sub-set requirements of the Management of the source systems database is based reporting and the data base architecture generally on the reporting requirements of the existing functional systems, of the Management and Executives. This is specific data warehouse is developed. where the requirements of IA have to be taken care. In most of the data warehouses Data mining: The information this requirement is not taken care of and requirements dictate the way the data the IA has to use his tools and techniques are to be mined. from outside the system. In fact, it may be necessary that while constructing a Data queries and report writing: data warehouse, the Internal Auditor Queries are written and stored in the be consulted. The BI tools for query and data warehouse and this populates the reporting or for analysis and alerting are report structure on a periodic basis. built with the operations in mind and not control in view. Here again the IAs Data analytics and simulations: This requirements are generally not considered. is another aspect of the data mining. The independence and objectivity as Predictive analysis is done based on contemplated in the Attribute Standard requirements and situation. 1100 as contemplated by IPPF5 can

1. Davenport, Thomas, January 2006, Harvard Business Review 2. BusinessDictionary.com. Retrieved 02 September 2010 3. http://www.theiia.org/guidance/standards-and-guidance/ippf/definition-of-internal-auditing/Retrieved on 02 September 2010 4. Howson, Cindi,2007, Successful Business Intelligence: Secrets to Making BI a Killer App, McGraw-Hill

5. IPPF International Professional Practices Framework of the Institute of Internal Auditors

6 October 2010

7 October 2010

Rotation to new dimensional Up, Roll-up, Pivot. Data mining supports in addressing Risk Management (2120) and comparisons in the viewing area Control of the Performance Standards All the above features help IA go into (2130). depths of the transaction data, analyzing them in the way required and hence from Business Intelligence as a concept and establishing of audit trail the IA will be practice has come to stay. Increasingly Server management tools to able to undertake benchmark data against organisations are using BI along with ERP package, backup and restore: This periods and perform inter and intra firm or distributed computing in order to make their reporting efficient and effective. The IA gives the IA the insight into DR or BCP analyses. who constantly views the organisational data routines. from control and compliance perspectives Data Mining Database server activity monitoring Data mining: the extraction of predictive requires making use of appropriate technology to complement the Management and performance optimization: information from large databases. of client organisations in upholding the Complete log of access and authority digression, intrusion, etc. can be assessed Data trend, connection and behavior functions of IA. The Continuing Professional Development (1230) and Quality Assurance pattern analysis by IA. and Improvement Programme of the Attribute Standards (1330) can be fully Data quality OLAP addressed by providing periodic updates On-Line Analytical Processing (OLAP) is to the Internal Auditors in some of the key a category of software technology that Data mining tools areas. Hence, there is strong case today for enables analysts, managers and executives the IA to build skills to get the best out of BI to gain insight into data through fast, Predictive and business analytics systems, by addressing the following: consistent, interactive access to a wide Descriptive and decision models variety of possible views of information Knowledge of database systems and that has been transformed from raw data data warehousing technologies to reflect the real dimensionality of the Statistical techniques and algorithms enterprise as understood by the user. The data mining capability is yet to be Ability to manage database system integration, implementation and testing OLAP functionality is characterized by completely used by the IA community. The dynamic multi-dimensional analysis of data mining becomes extremely important consolidated enterprise data supporting when handling large amount of data. Some Ability to manage relational databases and create complex reports end user analytical and navigational activities of the tools available help in unearthing even remote relationship between variables. including: Some of the approaches in this regard are Knowledge and ability to implement data and information policies, security Calculations and modeling applied across the use of: On-Line Analytical Processing requirements and government dimensions, through hierarchies and/or (OLAP), Multidimensional/ hyper cubes, regulations. OLAP operations: Slice, Dice, Drill Down/ across members Extract, clean, conform and deliver: These are excellent methods with which analysis of the data can be made as per the requirements of the IA. The IA will be in a position to identify any wild or non-conforming transactions. Trend analysis over sequential time periods Slicing subsets for on-screen viewing Drill-down to deeper levels of consolidation Reach-through to underlying detail data

About the Author: R.S.Murali is the Managing Director & Principal Consultant of NCR Consultants Limited (www.ncrcl.com). He is a qualified Chartered Accountant, Cost Accountant and Company Secretary. He is an alumnus of University of Manchester, UK. He is also a Certified Management Consultant CMC by ICMCI, USA. He has over 25 years of consulting, training and research experience and has drafted four Accounting Standards for local governments. He can be contacted on muralirs@ncrcl.com

8 October 2010

9 October 2010

way of the economic consequences to look for alternative solutions. Step 3: Develop the cost details by year considering memory joggers for cost structures. Step 4: Select the appropriate cost model, simple discrete, simple with some variability for repairs and replacements, complex with random variations, etc. required by project complexity. Step 5: Acquire the cost details. Step 6: Assemble the yearly cost profiles.

Step 7: For key issues prepare breakeven charts to simplify the details into time and money. Step 8: Sort the big cost items into a Pareto distribution to reconsider further study. Step 9: Test alternatives for high cost items such as what happens if maintenance cost is 10% than planned, etc. Step 10: Study uncertainty/risk of errors or/alternatives for high cost items as a sanity check and provide feedback to the LCC studies in

iterative fashion. Step 11: Select the preferred course of action and plan to defend the decisions with graphics. LCC combines acquisition and sustaining costs. Acquisition and sustaining costs are found by gathering the correct inputs, building the input database, evaluating the LCC and conducting sensitivity analysis to identify cost drivers. Acquisition costs have branches for the cost tree shown in Figure 2 as a memory jogger. Sustaining costs have branches for the tree as shown in Figure 3 which is also a memory jogger. LCC requires facts driven by data and analysis of data from arithmetical analysis to more complicated statistical analysis. Follow guidelines for each step listed in Figure 1 to work-out a typical engineering problem (remember, a single right or wrong method/solution does not exist many methods and routes can be used to find LCC). If you disagree with the cost or life data, substitute your hypothesis values determined by local operating conditions, local costs, and local grades of equipment. Consider the following LCC example. Step 1: Define the problem. A solo pump is operating without an online spare. At pump failure, the process shuts down and financial losses are incurred as each hour of down time results in a gross margin loss of US$4,000/hour of outage. Find an effective LCC alternative as the plant has an estimated 10 years of remaining life and is expected to be sold-out during this interval. Step 2: Alternatives and acquisitions/ sustaining costs. Consider three obvious alternatives for LCC (other alternatives exist for solving this problem, however, the list is pared for brevity): 1. Base case - do nothing. Continue solo ANSI pump operations with a 100 horsepower, 1750 RPM, 250 psi, 500
11 October 2010

By: Jacob Joby Varghese

A Life Cycle Cost Summary FINAL PART


Life Cycle Cost (LCC) Analysis helps in advocating reducing life cycle costs for equipments in wide areas within all sectors by showing show/why reliability and maintainability must be included in upfront decisions for strategic and tactical issues of achieving the lowest long term cost on ownership. LCC concepts are resurging presently within global organisations, responsible MNCs with Corporate Social Responsibility (CSR)s in place, including worldwide Government efforts to minimize energy costs. Why use LCC? LCC helps change provincial perspectives for business issues, with emphasis on enhancing economic competitiveness, by working for the lowest long term cost of ownership, which is not an easy answer to obtain. Consider these typical problems and conflicts observed in most companies: 1. Project Engineering wants to minimize capital costs as the only criteria; 2. Maintenance Engineering wants to minimize repair hours as the only criteria; 3. Production wants to maximize uptime hours as the only criteria; 4. Reliability Engineering wants to avoid failures as the only criteria; 5. Accounting wants to maximize project net present value as the only criteria, and;
10 October 2010

6. Shareholders want to increase stockholder wealth as the only criteria. Management is responsible for harmonizing these potential conflicts under the banner of operating for the lowest long term cost of ownership. LCC can be used as a management decision tool for harmonizing the never ending conflicts by focusing on facts, money and time. Why should engineers be concerned about cost details for LCC? It is important to help engineers think like MBAs and act like engineers for profit making enterprises. Its all about the money! Economic calculations are well defined but the discount rate is important (US Government 2002). Accounting and finance organisations set internal discount rates (which often change) to make economic decisions easy for engineers. Cash flows into/out of a business. The discounting method summarizes transactions over the life of the investment in terms of present or future dollars. Engineering always want a simple, single value, criteria for a project the answer for LCC is called net present value (NPV). NPV is the present value of proceeds minus present value of outlays. Projects and processes with the greatest NPV is usually the winner. Often for incremental changes on a project or within a plant, you lack enough details to arrive at a positive NPV. Thus many improvement projects must be selected on the least negative NPV values

from many alternatives. So once again, we can have the single number engineers always want its NPV but in this case, its the least negative NPV. Most fixed assets and other projects have a limited useful life. All equipment has a finite life based on both deterioration and obsolescence. The most common depreciation methods is straight line depreciation based on acquisition cost less salvage. Straight line depreciation is based on consumption of a fixed percentage of the equipment cost. Often, straight line depreciation is used for internal accounting reports of profit/loss and for calculating NPV. Income tax rates vary and may require inclusion of state as well as federal taxes. Engineers must be concerned with life cycle costs for making important economic decisions through engineering actions. What goes into LCC? LCC includes every cost that is appropriate and appropriateness changes with each specific case which is tailored to fit the situation. LCC follows a process (Fabryck 1991Appendix A) as shown in Figure 1. The steps are: Step 1: Identify what has to be analyzed and the time period for the project life study along with the appropriate financial criteria. Step 2: Focus on the technical features by

Figure 2: Acquisition Cost Tree

Figure 3: Sustaining Cost Tree

Figure 4: Breakeven Chart

gpm, 70% hydraulic efficiency, pumping fluid with a specific gravity of 1. 2. Add a new, second ANSI pump in parallel (literally in redundant standby) which can be started immediately without the loss of production upon failure of the running pump. Alternate running of the parallel unit every other week to avoid typical failures incurred by nonoperating equipment. The capital costs for the second pump is $8,000 plus $3,000 for check/isolation valves, plus $2,500 for installation. 3. Remove the existing solo ANSI pump and replace it with a new solo API pump with the same performance as for the ANSI model. The API pump cost $18,000 plus $3,500 for installation and the installation will incur a four hour loss of production for connecting the new pump. Step 3: Prepare cost breakdown structure/ tree. Refer to Figures 2 and 3 for memory joggers of the cost buckets to consider for three cases. Alternative 1: In the do nothing case, the cost breakdown structure will incur cost in these categories: 1) For the solo pump, the acquisition costs are sunk and acquisition costs need not be considered, 2) Sustaining costs must be accumulated for labor, materials and overhead, replacement/ renewal costs + transportation, energy costs + facilities costs, support + supply maintenance costs, operations costs, ongoing training costs, and for the end of
12 October 2010

life conditions disposal permits + wrecking/ disposal + remediation + asset write-off/ recovery costs + miscellaneous green/ clean costs will be incurred. This case is Accountings default condition and the case engineering usually wants to ignore. Alternative 2: For the addition of a dual ANSI pump, the cost breakdown structure will incur acquisition costs for program management, engineering design, engineering data, facilities and construction costs. All of the sustaining costs for the solo case will be incurred plus system/equipment modification costs and engineering documentation costs. Alternative 3: For the replacement of the ANSI solo pump with an API solo pump we will incur both acquisition and sustaining costs which will be different (but similar) to the dual ANSI case. Step 4: Choose analytical cost model. The model used for this case is explained in an engineering spreadsheet. The spreadsheet merges cost details and failure details to prepare the NPV calculations. Failure costs are prorated into each year since the specific time for failure, because of chance events, is not known. The same spreadsheet will be used with more details when statistical uncertainty is added in a section which follows. LCC spreadsheets are available on the Internet (Barringer 2002). Step 5: Gather cost estimates and cost models. This is the complicated section where all the details are assembled. Of course the

more thorough the collection process, the better the LCC model. For this summary, the details have been shortened with just enough information described to show the trends. Use of MTBFs and expected failures are based on the exponential distribution which is an acceptable first-cut for costs, but this technique is not an accurate predictor of failures for wear-out phenomena expected for many of these components. An improved accuracy method uses Weibull distributions for failures (Abernethy 2000). Assume all the equipment follows the exponential distribution for reliability with constant failure rates. Note the reciprocal of failure rate is the mean time to failure. Since failure rates are constant, use one year time buckets to collect the cost of failures per year as the literal failure date is unknown. Use the following assumptions based on an accounting principle that costs will follow activity - in this case it will follow failure activity. Alternative 1: Do nothing case - the datum: Use the following details from plant experience. See (Barringer 1996) for detailed cost at http://www.barringer1. com/Papers.htm: select paper #7. Cost details are not provided here because of space limitations. Alternative 2: Add redundant ANSI pump: Use the following details from plant experience. This case results in pumps installed in parallel but operated as a standby redundant system as the redundant components are not energized but are literally standing by, waiting to be used when failure of the operating system is detected.

Of course the detection/switching device is very important for calculating overall system reliability and for this case the reliability is assumed to be 100%. Also for simplicity, the reliability of the system is calculated as if the redundant pumps are operating in parallel. Again, cost details are listed in (Barringer 1996). Alternative 3: Replace Solo ANSI pump With Solo API Pump: Use the following details from plant experience - again, the cost details are listed in (Barringer 1996). Step 6: Make cost profiles for each year of study. This step will take into account the annualized charges plus the lumped charges at the front and rear end of the project as shown in Table 1. Based on these alternatives in Table 1, adding the ANSI pump in parallel looks more attractive based on the NPV at the 12% discount rate using straight line depreciation and planning for a 38% tax rate. No revenue stream is included in these calculations so the case with the least negative NPV will be the most attractive case. Remember each company will have its favorite discount rate, depreciation schedule and method for making capital decisions. That means local conditions may prevail in making decisions. Step 7: Make break-even charts for alternatives. Breakeven charts are useful tools for showing effects of fixed and variable costs. Results for the three alternatives are shown in Figure 4 for a quick grasp of how the breakeven points compare to the base case. In Figure 4, net present values are

Table 1

13 October 2010

shown on the Y-axis to combine cost of money with time and show how the effects of expenditures and cost reductions play together. Of course the issue is to choose alternatives which payback quickly and payback big returns with favorable NPVs which for this case favour the dual ANSI pumps. Step 8: Pareto charts of vital few cost contributors. The purpose of Pareto charts is to identify the vital few cost contributors so the details can be itemized for sensitivity analysis and ignore the trivial many issues. Pareto rules say that 10 to 20% of the elements of a cost analysis will identify 60% to 80% of the total cost these high cost items are the vital few items of concern and need to be carefully considered. The cost elements for the also ANSI pump are shown in Figure 5 with the high cost of lost gross margins more than twice the cost of the next item. Compare the absolute magnitude of the costs with the cost elements for Figures 5, 6 and 7. When redundant ANSI Pumps are installed, the Pareto chart looks substantially different as shown in Figure 6 where electrical power becomes the most significant cost item. Step 9: Prepare sensitivity analysis of high costs and reasons for high cost. Sensitivity analysis allows study of key parameters on LCC. In Table 1 the analysis begins with mean time between failures which drives the failure rate. Since all of the components are in series, the failure rates for the exponential distribution can be added to obtain an overall failure rate for the system. Figure 5 shows the key for controlling cost is to avoid the downtime which results in lost gross margin caused by unreliability. If an inferior operating philosophy that all pumps cavitate then reliability within the plant will be low as equipment will be killed before it reaches its inherent life span. Figure 8 (Barringer 2003) illustrates the sensitivity of pump reliability to pump curves and other well-known problems. The shape of the reliability curve is dependent upon many pump features and operating conditions.
14 October 2010

Figure 5: Pareto Cost Chart For Solo ANSI Pump

Figure 8: Pump Reliability vs Pump Curve

Table 2: Failure Data

Figure 6: Pareto Cost Chart For Parallel / Redundant Pumps

Figure 7: Pareto Cost Chart For Solo API Pump

Step 10: Study risks of high cost items and occurrences. Failure data is available from many sources (Bloch 1994) or (Bloch 1995) to test if the assumptions made in the analysis are valid or if unusual risks have been taken with numbers used in the study. Consider the following failure rate values in Table 2 as failure rate or the reciprocal MTBF which shows the failure data used for the analysis is within the expected range. Step 11: Select preferred course of action using LCC.The selection of a parallel/ redundant strategy using ANSI pumps is the most attractive alternative out of the three proposed because it avoids process failure and thus reduces the high cost of unreliability. Buy equipment which is electrical power efficient and correctly sized with high hydraulic efficiency to make substantial

reductions in electrical power consumption which is usually a hidden cost item but clearly identified by LCC as a vital element. Summary Life-cycle costs include cradle to grave costs converted to NPV economic models. When failure costs are included, the quantity of maintenance manpower required can be engineered which avoids the use of antique rules of thumb about how maintenance budgets are established. LCC is a method to correctly consider long-term business decisions which have advantages for profitability. LCC is not easy, but it is effective for building a sound business case for action. LCC techniques provide methods to consider trade-off ideas with visualization

techniques as described above which are helpful for engineers. Likewise LCC analysis provides NPV techniques of importance for financial organisations, and LCC details give both groups common ground for communication to aid in insuring sound business decisions and actions. LCC is the laser guided missile attack on important business problems for projects and processes. Of course it requires greater sophistication than attacking problems with proverbial hammers, tongs, and brute force. Good alternatives for LCC require creative ideas. This is the role of the engineer to suggest and recommend cost effective alternatives. Much lower LCC are obtained when creative efforts are employed in the design area. Making changes downstream in the operating plants has smaller chances for improvements because its employed too late in the improvement cycle. Design

engineers are the most important link in devising cost effective plants and naturally the burden of LCC falls on their shoulders. But design engineers cannot perform an effective analysis unless they have reasonable failure data from operations. Thus the need for plant and industry databases of failure characteristics. Remember, to obtain good failure data, both failure and success

data must be identified. LCC is simply a way-stop on the never ending journey for reducing costs. LCC is clearly not a destination. LCC provides the tools to engineer maintenance budgets, ownership costs, and present decision making scenarios in a financial perspective to achieve the lowest long term cost of ownership.

About the Author: Jacob Joby Varghese is currently working with Group Internal Audit, Dubai World as Senior Technical Auditor. He is a mixeduse Development and Commercial Specialist with over 15 years of experience in Business feasibility, Master planning, Program Management, Project Management, Planning and Execution of Civil Works, Site Management and Planning. Jacob is a Civil Engineer and a Certified Cost Engineer (CCE). Currently he is pursuing his MBA for Real Estate and Construction Management from the College of Estate Management, University of Reading, London and CIA.
15 October 2010

By: Raza Abdulla

UAE Audit Week


UAE-IAA proposes to hold the UAE Audit Week from 11-18 February 2011, with the objective of raising awareness about Audit amongst large business entities, both in the public and private sectors. Since an event of this size and scale will require a large number of volunteers and coordinated effort from the audit fraternity, through this forum I request audit professionals to come forward to assume roles and responsibilities that will make the exercise comprehensively beneficial to each one of us. Please permit me to elaborate further A good starting point to flag off preparations would be to identify key business sectors for the campaign. Some of the broadly identified sectors are: education, aviation, financial, oil & gas, transport, real estate, construction, communication, hospitality, retail and health sectors, external auditors & consulting firms, regulatory bodies, professional bodies, the World Gold Council and volunteers from the Conferences and Exhibitions sector. Once done, we need to identify the Chief Audit Executives (CAE) or other key contacts to support this initiative. This will be followed by a brain storming session with the CAEs and other volunteers to discuss and deliberate upon how to make the event more meaningful. A corollary to this would be defining roles, allocating responsibilities and firming up deadlines that will mark the rolling out of the campaign. Amidst such seamless voluntary work, a core working group will evolve that will run and monitor the campaign with a keen eye on the agreed milestones. With key decisions made on the sectors to be covered, with leaders identified for each sector and a working group formed for each sector, it would be time to roll out the marketing material, debate on possible communication channels to ensure

With the changing global scene Stay in the front row


In a globalized world, competition is everything. At Deloitte, we make it our business to study and understand the competitive environment. With 1,700 people in over 25 locations across the Middle East, and access to the deep intellectual capital of 165,000 people worldwide, Deloitte is your local resource to connect you to a global network of expertise and innovation. Working in partnership with you, our people design solutions that bring tangible returns and sustainable growth for your business. From auditing to tax, and consulting to financial advisory services, our member firms provide a broader range of multidisciplinary services than any of our competitors. For world-class thinking with an edge, you know where to come.

maximum reach for the campaign and to ensure all required logistics are in place. Volunteers can add muscle to the event at multiple levels. This could involve preparing the marketing material, helping with the publicity, visiting interested outfits, meeting potential sponsors, presenting emerging audit initiatives, in short any tiny step that will propel the week long mammoth event forward. As part of the UAE Audit Week several events are on the anvil. These include conducting campaigns at major universities and colleges in the UAE that will bring about an ameliorated awareness about the audit profession; signing MOUs with prominent organisations to mark the event and also awareness sessions on Risk and its impact,

role of Audit in altering, fixing, monitoring and bringing transparency about controls and risks in organisations etc. Involvement is sought from the entire UAE and not just from select few Emirates. It is also proposed to seek participation from the regional chapters in this pioneering event. We would also welcome suggestions from the IIA headquarters that will add value to the UAE Audit Week. The date is set, the objectives are clear. Equally clear is the fact that it is a labour that will assume impressive shape only with the help of volunteers. Working together, overcoming challenges as one cohesive unit is bound to make the UAE Audit Week a period of learning and sharing.

Visit us at www.deloitte.com

About the Author: Raza Abdulla has been working with the Emirates Group Internal Audit for 28 years as Vice President - Internal Audit. He has been the past chairman for the IAAIA, current EXCOM member, and in his professional capacity as the founder member and past President of the IIA-UAE Chapter, contributes to the ongoing research and development of the internal auditing profession in the region.

Emaar Business Park Sheikh Zayed Road Building 1, 4th Floor, Suite 4

PO Box 282056 Dubai, UAE Tel: +971 (0)4 369 8999 Fax: +971 (0)4 369 8998

2008 Deloitte & Touche (M.E.). All rights reserved. Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms.

Eighty Years in the Middle East

By: Tim Sandwell

Barclay Simpson Internal Audit Recruitment Review


The background to the financial crisis was in our view reasonably easy to explain. It was caused by cheap money and too much debt. The consequence was increased asset prices which supported more debt, the real risks of which were hidden by financial complexity and, in the case of the GCC, opaque ownership structures. If anyone thought the GCC might be immune when the financial crisis struck, Dubais overheated property market demonstrated it was not. However, unlike Europe, where private debt default has been replaced by the threat of sovereign debt default, there is little such concern within the GCC. It is therefore surprising, on the back of both expansionary fiscal policies and anticipated economic growth of 4% in 2010, how lacklustre the recovery feels. Until recently it was clear that outside of the public sector, unlike other regions of the world, the recovery had yet to reach the corporate governance recruitment market. Perhaps the relative transparency of Western economies is the difference. Although the credit related losses in Europe and the United States were greater, they were also more readily identified and quantified. Identifying and reporting losses provide certainty and allows informed investment decisions to be made. Within the GCC, uncertainty comes from lower levels of transparency and questions about the governance of state owned entities and family owned companies which form the major part of the regions economy. Whilst
18 October 2010

heavily in the recruitment of corporate governance staff. Substantial investment is being made right across internal audit, risk, compliance, legal and information security functions. Similarly within the GCC, at the start of 2010, there was an upsurge in the number of vacancies for Heads of Audit and other senior internal audit management positions. The common remit was either to establish an internal audit function or to develop a stronger function than already existed. We perceived this as a reaction to the weak risk management and systems of control that the credit crisis and subsequent recession had exposed. Whilst many of these roles were in banking, it included other sectors such as real estate, media, industrial and state owned groups. We understood this to imply that a broadly based commitment to progressive internal auditing was underway. We are therefore surprised to report that this initial surge of recruitment activity petered out and few of the vacancies for senior roles were successfully recruited. Decision makers have seemingly become risk averse and initial intentions to reform have been outweighed by uncertainty and cost containment measures. The exceptions are Qatar and Abu Dhabi, reflecting the relative strength of their economies compared to the rest of the GCC. Even here, recruitment has been on a replacement basis rather than providing any sign that internal audit departments are being expanded. The Big 4 and internal audit consultancy firms have benefited from this and have gained audit and risk assurance assignments at the expense of the expansion of in-house internal audit departments. Not surprisingly there has been demand from the consultancies for experienced internal auditors. In terms of the availability of candidates,

this has remained good with a local pool of internal auditors supplemented with those seeking to move into the region. According to a recent survey by HSBC, the GCC is still the most popular region in the world for expatriate workers. They are attracted by both the financial rewards and potential career development prospects. Latest economic forecasts, given stable oil prices, are for economic growth in the GCC to exceed 5% in 2011. This is still below pre-crisis levels. Without doubt a lack of transparency and Western levels of governance are hindering investment and decision making. However, as the fallout from such troubled groups as Dubai World is resolved, confidence is emerging. The recent return of Dubai to the credit markets is further boosting confidence and

reflects improved investor sentiment. We are optimistic that this will increase the demand for internal auditors. Ultimately the key issue within the internal audit market has not changed. Internal auditing remains underdeveloped by international standards and there will eventually be immense pressure to improve corporate governance as the region integrates with the global economy. It is likely to be only a matter of time before this issue is comprehensively addressed and it is certainly easier to make the type of investment necessary when economies, as now, are growing. We will be surprised and disappointed if the development of internal auditing does not return in the near future to the pattern that was established prior to the financial crisis. For further insight on the GCC internal audit recruitment market please view the Barclay Simpson Interim Middle East Market Report 2010 at http://www.barclaysimpson.ae/ middle-east-interim-market-report-2010.

they most often have the implicit support of highly solvent sovereign governments, markets are better able to cope with losses rather than uncertainty. In this respect, the lack of adequately developed systems of corporate governance and a legal infrastructure is not helping the region. Recruitment is a form of investment. Companies invest and recruit when they feel confident. Given that effective corporate governance would improve confidence, it is perhaps easy to make a case for building on the investment in governance that was apparent before the financial crisis. The sovereign states that make up the GCC have the opportunity to do so. Economic growth is forecast to accelerate further in 2011 and survey evidence is emerging that suggests general recruitment patterns are in the process of improving. There is now

a balance of employers that are intending to recruit. However, for all the supposedly sophisticated regulatory regimes and all the sums invested in corporate governance and internal auditing, the credit crisis still happened. This has to be seen as a failure. Governments and regulators around the world have responded to this failure and there have been any number of initiatives. Basel III, the overhaul of bank capital and liquidity standards, is perhaps the most high profile and far reaching of the co-ordinated responses. Incrementally, regulators are looking to make the financial system less risky. It is equally clear, perhaps as a result of regulatory pressure, that since the start of 2010 the financial sector in other regions of the world have responded by investing

About the Author: Tim Sandwell is a Director of Barclay Simpson and leads their Middle East operation. Barclay Simpson is a specialist corporate governance recruitment consultancy that covers internal audit, compliance, risk management, IT security and legal professionals. They have offices in Dubai, London and Hong Kong.

19 October 2010

Knowledge Update
New on the Horizon: Leases for Real Estate companies
In August 2010 the International Accounting Standards Board and the US Financial Accounting Standards Board published a joint exposure draft on leases, which will have significant implications on lease accounting in the real estate sector if implemented in its current form. A significant overhaul in lease accounting standards has been widely anticipated for some time now. In fact it is over 10 years since the core proposals in this exposure draft (ED or Leases ED) were first made. As expected, the proposed standard, if adopted in its current form, will make significant changes to the current approach to accounting for leases. In summary, it removes the differences between operating and finance leases and brings all lease obligations onto the lessees statement of financial position as a financial liability. For real estate occupiers this is significant. In the past, the majority of property leases were classified as operating leases and so property rentals were treated as an operating expense in the lessees financial statements. Under these proposals lessees would be obliged to bring the net present value of their future lease obligations onto the statement of financial position. http://www.kpmg.com/Global/en/IssuesAndInsights/ A r t i c l e s P u b l i c a t i o n s / P a g e s / N OT H - L e a s e s - f o r- R e a l EstateCompanies.aspx

By: Vishal Thakkar

Guide to Using International Standards on Auditing in the Audits of Small and Medium-Sized Entities
The second edition of this Guide was commissioned by the IFAC Small and Medium Practices (SMP) Committee to assist practitioners on the audit of small and medium-sized entities (SMEs), and to promote consistent application of the International Standards on Auditing (ISAs). While developed by the Canadian Institute of Chartered Accountants (the CICA), the Guide is the full responsibility of the IFAC SMP Committee. The International Auditing and Assurance Standards Board (IAASB) staff and a global advisory panel, with members drawn from a broad cross-section of IFAC member bodies, have assisted in reviewing the Guide. The Guide provides non-authoritative guidance on applying ISAs. It is not to be used as a substitute for reading the ISAs, but rather as a supplement intended to help practitioners understand and consistently implement these standards on SME audits. The Guide does not address all aspects of ISAs and should not be used for the purposes of determining or demonstrating compliance with the ISAs. The Guide is intended to explain and illustrate so as to develop a deeper understanding of an audit conducted in compliance with ISAs. It offers a practical how-to audit approach that practitioners may use when undertaking a risk-based audit of an SME. Ultimately it should help practitioners conduct high-quality, cost-effective SME audits, and in so doing, help them better serve the public interest. It is anticipated that the Guide will be used by member bodies, audit firms and others, as a basis for educating and training professional accountants and students. IFAC member bodies and firms may use the Guide, either as it is or tailored to suit their own needs and jurisdiction. It provides a basis from which member bodies and others can develop derivative products such as training materials, audit software, checklists and forms. http://web.ifac.org/media/publications/5/guide-to-usinginternationa-1/guide-to-using-internationa-1.pdf

Arab Media Outlook: Collaborating for Growth


This groundbreaking report, released by the Dubai Press Club in conjunction with PricewaterhouseCoopers, reviews the current state of Arab media across twelve Arabic-speaking countries. Supported by Dubai Media City, Dubai Studio City and International Media Production Zone, the Arab Outlook focuses on the impact of the global media trends on the Arab Media and predicts the course of events for many aspects of the industry over the next five years. Developments in digital media and the emergence of broadband access and TV delivered directly to mobile devices present exciting growth opportunities for media companies across the Arabicspeaking world. Yet in order to benefit from these opportunities, certain factors must be addressed: the relatively limited availability of affordable broadband access across much of the region; and the lack of reliable audience and readership figures: Conclusions outlined in this report enable us to take an accurate view of the Arab media industry both in quantitative and qualitative terms. http://www.pwc.com/m1/en/publications/Arab_media_ outlook.jhtml
20 October 2010

Ask how Protiviti is helping clients use the


new IIA standards to create organizational value.
The new IIA International Standards for the Professional Practice of Internal Auditing (Standards) took effect in January, 2009. These Standards require assessments of IT governance, use of data analysis techniques, assessments of fraud risk management and creation of records retention policy. Do you know how the Standards affect your organization? Are you using them as an opportunity to create value? At Protiviti, we recently held several online seminars for more than 2,000 internal audit leaders to help them understand the revisions. We are helping our clients use the Standards to make their internal audit functions more effective and efficient. Could you be doing the same? Ask how at protiviti.com today or contact Adnan Zaidi, Managing Director on + 971 50 319 6564 or email UAE@protivitiglobal.ae.
2010 Protiviti Inc. An Equal Opportunity Employer. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. PRO-1109

About the Author: Vishal Thakkar is a qualified Chartered Accountant and Certified Internal Auditor. He is currently working with Group Internal Audit department of Petrofac and can be contacted at vishalkthakkar@yahoo.com

UAE Training Calendar


for November / December 2010 & January 2011
DATE Nov. 7-8 Nov. 9-11 TRAINING Continuous Auditing Methodology Top 5 Mistakes Audit Departments Make Communication - The Cornerstone of Audit Building Performance Excellence How to Plan Workshop Audit Challenges Routable Relationship Development Nov. 21 - 22 Cyber Forensic- Forensic Auditing Hunt for Fraud:Prevention and Detection Techniques Nov. 23- 25 Information Risks Management Implementing Control Self Assessment Successful Application & design End of November or beginning December Dec. 6 7 Dec. 8 9 Demonstration of a Continuous Control Monitoring using ACL Hands on Case Study using Hands on Desk Top Albert Marcela, Jr. Robert Mainardi PROPOSED FACILITATOR

Gretel de Paepe

Introduction to Construction Audit Construction Audit Advanced Technique Denise Cicchella

Dec. 12 - 13

FRAUD AUDITING/ FORENSICS Investigative Interviewing- Corp. Internal Investigation Larry Rosipajla

Jan 2011

CIA Review Course Paper 1 CIA Review Course Paper 2 CIA Review Course Paper 4 CIA Review Course Paper 3 ALL PAPERS Phoenix Financial