Internal Auditing: An Introduction

Internal Auditing:
An Introduction
Chapter 2
An Introduction to Internal
Auditing
2
Blueprint
3
History and Development
 Introduction:
 Internal Audit Activity

 Assistance to management
 Assurance function e.g. - evaluation of systems and
processes
 Consulting activity e.g. - advice to management
4
 History of Auditing:
 A need for control activities
 “Audire” – to “hear” if event is true
 To audit = to check, verify, scrutinise
 Auditing = traditionally related to the
verification/examination of accounting records

 Early 1900’s distinguish between:
 internal and external auditing
5
 History of Internal Auditing:

 Need for improved governance within organisation
 Factors contributing to development of IA (para 1.3)
 Traditionally assurance function – checking routine
financial and operational activities

 Watch dog (Assurance) replaced with
Guide dog (Consulting)


Modern internal audit activity:
 Value adding activity!
6
Institute of Internal Auditors (IIA)
 IIA (Inc):
 Professional body
 1941 established the IIA
 Purpose (para 1.4.1) indicated in charter
 Timeline with important events
 Membership nearly 200 000 members in 165
countries
 Vision, Mission and Objectives
7
IIA Today
 Core purpose
 Vision
 Goals
8
Institute of Internal Auditors (IIA)
 IIA (SA):
 1964
 Membership
 Objectives
 Legislation and codes relevant to IA function in SA:

 King Report on Corporate Governance
 Public Finance Management Act (PFMA)
 Municipal Finance Management Act (MFMA)
 Sarbanes-Oxley Act (SOX)
 Companies Act
9
Definition of Internal Auditing
 Original purpose – provide assurance concerning

historical activities
 New definition – internal auditors are there to add

value through facilitating change, giving advice and
counsel
 New definition leads to new IPPF
10
 Old definition focused mainly on compliance testing
 1997 – GTF to study needs of profession
 Found that old definition was insufficient
 New definition on 26 June 1999 = current definition

used
11
 Internal Auditing is:
 an independent, objective assurance and

consulting activity
 designed to add value and improve an
organisation’s operations
 it helps an organisation accomplish its objectives by
bringing a systematic, disciplined approach to
 evaluate and improve the effectiveness of risk
management, control and governance processes
12
 Independent
 Objective
 Assurance activity
 Consulting activity
 Add value
 Accomplish its objectives
 Evaluate and improve
 Effectiveness
 Risk management processes
 Control processes
 Governance processes
13
14
International Professional Practices Framework
(IPPF) – Six Elements
 Mandatory guidance (“must”):
1 Core Principles
2 Definition
3 Code of Ethics – Promotes ethical culture, applies to all
IA registered and performing IA services (see chap 3)
4 Standards
 Minimum requirements, compulsory
 Quality services, consistent basis, world-wide
 Attribute standards
 Performance standards
15
International Professional Practices Framework
(IPPF)
 Recommended guidance:
5 Implementation Guidance
Old practice advisories
6 Supplemental Guidance
Previous practice guides
16
Mission of Internal Audit
The Mission of Internal Audit articulates what internal audit

aspires to accomplish within an organisation.
Its place in the new IPPF is deliberate, demonstrating how

practitioners should leverage the entire framework to facilitate their
ability to achieve the Mission.
To enhance and protect organisational value by providing risk-

based and objective assurance, advice, and insight.
17
Core Principles
Articulate internal audit effectiveness:

Demonstrates integrity
Demonstrates competence and due professional care
Is objective and free from undue influence (independent)
Aligns with the strategies, objectives, and risks of the
organisation
Is appropriately positioned and adequately resourced
Demonstrates quality and continuous improvement
Communicates effectively
Provides risk-based assurance
Is insightful, proactive, and future-focused
Promotes organisational improvement

18
End
QUESTIONS?
19

Internal Auditing: An Introduction

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Internal Auditing:

 Internal Audit Activity

 Assurance function e.g. - evaluation of systems and

 “Audire” – to “hear” if event is true

 To audit = to check, verify, scrutinise

 Auditing = traditionally related to the

verification/examination of accounting records

 internal and external auditing

 History of Internal Auditing:

 Factors contributing to development of IA (para 1.3)

 Traditionally assurance function – checking routine

financial and operational activities

Guide dog (Consulting)

 1941 established the IIA

 Purpose (para 1.4.1) indicated in charter

 Timeline with important events

 Membership nearly 200 000 members in 165

 Legislation and codes relevant to IA function in SA:

 Public Finance Management Act (PFMA)

 Municipal Finance Management Act (MFMA)

 Sarbanes-Oxley Act (SOX)

 Original purpose – provide assurance concerning

 New definition – internal auditors are there to add

 New definition leads to new IPPF

 Old definition focused mainly on compliance testing

 1997 – GTF to study needs of profession

 Found that old definition was insufficient

 New definition on 26 June 1999 = current definition

 Internal Auditing is:

 an independent, objective assurance and

 Quality services, consistent basis, world-wide

The Mission of Internal Audit articulates what internal audit

Its place in the new IPPF is deliberate, demonstrating how

To enhance and protect organisational value by providing risk-

Articulate internal audit effectiveness:

Demonstrates competence and due professional care

Is objective and free from undue influence (independent)

Aligns with the strategies, objectives, and risks of the

Demonstrates quality and continuous improvement

Provides risk-based assurance

Is insightful, proactive, and future-focused

Promotes organisational improvement

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