OPERATIONAL APPROACH

OF INTERNAL AUDIT

taufikur@ugm.ac.id

07/08/21 1
 Internal Auditing Approaches
Internal auditing may be performed in many
different ways and there are a variety of
models that may be applied to exercise audit
role
The organization will define its audit needs
and this will help to establish which types of
audit service are provided

07/08/21 2
 Internal Auditing Approaches
 Vouching
Focus on comparing one transaction with another to
confirm their accuracy
Principal objective is to uncover errors and possibly
identify who is responsible
Auditor is generally associated with carrying out
detailed checking of transactions that have been
processed
Internal auditor tend to follow a detailed audit program
of tests that require little understanding of the
managerial systems of control

07/08/21 3
 Internal Auditing Approaches
 Verification
To test the assets and interests that are stated in
the balance sheet.
Examining evidence of the cost, authorization,
value, existence, beneficial ownership, and the
way the item is presented in the account (this
approach usually be done by external auditor,
internal auditor may also make use of this
technique particularly where assets in remote
locations have to be audited

07/08/21 4
 Internal Auditing Approaches
 Problem-solving
Management requires internal auditors to
provide reports on particular managerial
problems
This is due to the great flexibility in the way
audit skills may be applied to specific
problems and the level of objectivity that is
associated with audit

07/08/21 5
 Internal Auditing Approaches
 Fraud Investigations
Emphasis in an attempt to satisfy
management’s needs toward ensuring that
internal control systems are effective in
preventing most frauds and irregularities
Generally frauds arise where systems are
unsound or are not being properly operated
and the audit role is more effectively used
when it is geared towards systems reviews

07/08/21 6
 Internal Auditing Approaches
 Probity Reviews
Revolve around checking the integrity of
transactions and operational activities and
tend not to involve system evaluation
This may well involve inspection based
visits to remote offices and a certain amount
of checks of compliance

07/08/21 7
 Internal Auditing Approaches
 Systems Auditing
The idea is that systems are studied to assess
whether they are sufficiently controlled so that
managerial objectives may be achieved
By testing control systems and examining the
extent to which weaknesses impact on the
operation
The emphasis is not on performing an endless
series of tests but more on reviewing the system
and its principal objective

07/08/21 8
 Internal Auditing Approaches
 Operational Approach
- The main purpose of internal audit is to assist (serve) from
board of directors to all management levels to achieve
organization’s goals and objectives
- This approach reflects a belief that organization's highest level
need is for strong operational effectiveness, with adequate
consideration given at the same time to protective internal
control needs
- Internal audit’s scope beyond the scope of financial audit,
internal audit is more concerned with the effectiveness of
basic operational activities and how those operational
activities contribute to the total organization welfare and
profitability

07/08/21 9
 Internal Auditing Approaches
Defining Internal Auditor Role in Organization
 Internal and External Auditors: a comparison
– Mission
– Concern
– Function
– Position

07/08/21 10
 Area of Internal Audit Practice
 Organizational Service Function
– Mission of internal audit
– Needs of All management levels
– Concern on Internal control system as well as success of
organization
 Internal Audit’s Management Service Focus
– Helping management to do their jobs most effectively
– Maximum organization welfare
– As the eyes and ears of management
– Defines the overall operational approach of internal audit

07/08/21 11
 Area of Internal Audit Practice
 Internal Audit’s Profitability Focus
– Emphasis on doing what good business for the organization
– Internal audit should understand the measure of success and
focus its activities along those lines (enhance the long-rung
profitability or success of a particular organization)
 IIA Standards Approach
– Provide framework for the operational approach of internal
audit (in designing and performing an operational review)
 Reliability and integrity of information
 Compliance with policies, plans, procedures, laws, and
regulations
 Safeguarding of assets
 Economical and efficient use of resource
 Accomplishment of established objectives and goals for
07/08/21
operations or programs 12
 Basic Operational Steps in Any Review
(Operational Approach)
 An Overall Framework for Internal Audit Operation
Reviews
– Review and evaluate the background environment
– Acquire an understanding of the existing system of internal
control
– Undertake a preliminary evaluation of the adequacy of
design of the existing system
– Test compliance with the aforementioned existing systems
– Reevaluate the entire systems in terms of both current
design and actual implementation
– Summarize and report on deficiencies and present
appropriate recommendations

07/08/21 13