OVERVIEW OF

THE INTERNAL AUDIT PROCESS

taufikur@ugm.ac.id
Internal Audit Process: 9 steps
Step 1- Selection of the Auditee
Step 2 – Audit Preparation
Step 3 – Preliminary Survey
Step 4 – Internal Control Description,
Analysis, and Evaluation
Step 5 – Expanded Testing
Step 6 – Findings and Recommendations
Step 7 – Reporting
Step 8 – Follow-up review
Step 9 – Evaluation
Step 1- Selection of the Auditee
Auditee  organization entity, subsidiary,
operation or program, isolated
process, activity or condition
Who has the authority to select as auditee
 Management and Internal auditor
Risk should be the primary consideration
when selecting an auditee
Step 1- Selection of the Auditee
Developing audit plans
3 methods by which an auditee maybe
selected:
Systematic selection
Ad hoc audits
Auditee requests
Step 2 – Audit Preparation
Preparation for the audit include:
1. A tentative determination of the objectives and scope
of the audit
2. A review of audit files
3. Selection of the audit team
4. Preliminary communication with the auditee and
others
5. Preparation of the preliminary audit program
6. Planning the audit report
7. Obtaining approval of the audit approach
Step 2 – Audit Preparation
Determining Objectives (specific)
Review of operations and the design of the internal
control system
Tests of operational compliance with the designed
control system
Evaluation of the adequacy of the control system
Determining Scope
Area to be audited
The extent of the examination
Step 2 – Audit Preparation
Review of audit files
For the following audit
Selection of the audit team
Audit executive  audit director
Audit coordinator  manager
Auditor-in-charge  team leader  senior auditor
Audit staff  junior staff auditors
Preliminary communication
In order to inform auditee to prepare for audit
Step 2 – Audit Preparation
Preparing a preliminary audit program
During the initial audit preparation
Containing: audit objectives and scope, specific audit
questions to be answered, procedures to be employed,
evidence to be examine, etc.
Planning the audit report
Develop basic parameters
Approval of the preliminary audit program
By director of internal auditing
Step 3 – Preliminary Survey
Purpose: to gain auditee’s impression and
cooperation, to gather preliminary evidence
Opening conference
• Between audit team and management members
On-site tour
Document study
Written description
Analytical reviews
Step 4 – Internal Control Description,
Analysis, and Evaluation
Description of controls
Charts; questionnaires; narrative outline
“Walk-through”
Of selected transactions and operations through key control
points
Documentation walk-throughtracing
Procedural walk-throughperform the procedure
Limited testingget the initial understanding
Evaluating of internal controls
Risk reassessment whether any needed changes in the
objectives or scope of the audit
Step 5 – Expanded Testing
In-depth examination of the auditee
(the extent and the effects of internal control’s
strengths and weaknesses)
Main activities:
Detailed review of operations and controls
Tests of auditee’s compliance with control system
Evaluate design of control system
Evaluate the effectiveness of control system
Step 6 – Findings and Recommendations
Finding
Conditions  as actually observed
Criteria  by which to evaluate the condition
Effects (risk)  associated with any observed problem
Cause of the problem
Recommendations
No changes  control is adequate and effective
Improve the effectiveness
 Modifying current controls or adding new ones
Ensure against risks
Rates of return (for certain investment) to reflect risks
Step 7 – Reporting
Written (documentation):
- Audit objectives
- Audit scope
- General procedures
- “Finding”
- Recommendations
- Signed by the auditors (audit team leader)
Deliver to:
Executive management
The auditee’s management
The audit committee
Internal auditing department keep one copy in
Personal presentation
Step 8 – Follow-up
3 general forms of follow-up
Top management takes any actions by consulting with auditee
Auditee act on those decisions (after the above consultation)
Auditor’s review

Step 9 – Evaluation
Evaluation of audit approach, techniques, etc
Auditor performance reviews