Course : ACCT7142 – Internal Audit

Effective Period : September 2016

Introduction to Internal
Auditing

Session 1
 Learning Objectives

LO 1 : Discuss internal audit standard,

guidelines, and current issues and
IT usage in the process of internal
audit
• Introduction
• The IIA Standards
• The essential guide to internal auditing
• The development of internal auditing
• IT usage in the process of internal audit
Introduction
Internal auditor's rule
• Internal auditor as assurance provider
• Internal auditor as as a consultant
• Authorities and responsibilities of internal auditors
• Trend and relevance of internal auditor
• Internal auditing function and corporate governance
 Internal Auditors as Assurance
Providers
Assurance reports on these measures are currently voluntary, except
for the audit report on economic measures (four basis financial
statements), but internal auditors are well-trained and positioned to
provide numerous assurance services.

Internal auditors, in addition to these voluntary assurance services,

can assist external auditors in their integrated audit of internal controls
and financial statements. (PCAOB Auditing Standard (AS) No. 2,
superseded by AS No. 5)

Internal auditors may assist management in complying with Section

302 and 404 requirements of SOX by reviewing management’s
certifications on internal controls and financial statements or
providing some type of assurance on the accuracy of those
certifications.
Internal Auditors as Consultants

Internal auditors can provide a variety of consulting

services to the company’s board of directors, the audit
committee, management, and other personnel at all
levels.

1)Consulting services to the board of directors and

audit committee.
2)Consulting services to management.
3)Internal auditor training services.
Authorities and Responsibilities
of Internal Auditors
The internal audit function should have:
(1) full and free access to the company’s audit
committee;
(2) unrestricted access to the company’s records,
documents, property, and personnel; and
(3) authority to discuss initiatives, policies, and
procedures regarding risk assessment,
internal controls, compliance, financial
reporting, and governance processes with
management and other corporate governance
participants.
Trend and Relevance of Internal
Auditors

1. The Foreign Corrupt Practices Act (FCPA) 1977

2. COSO Report of the National Commission on
Fraudulent Financial Reporting (1987)
3. The IIA redefined internal auditing in 1999
4. SOX Sections 302 and 404 (keep in mind that
SOX does not directly address internal auditor
responsibilities or internal audit function.)
5. The PCAOB in its AS No. 2
Internal Auditing Function and
Corporate Governance
Comparison of Internal Audit (Pre- and
Post corporate Governance Reforms)
 The IIA Standards
IIA’s Attribute Standard
 The IIA Standards
IIA’s Performance Standards
The IIA Standards
Code of Ethics
 The IIA Standards
The IIA Standards
 The essential guide to internal
auditing
Internal Auditors are striving to fulfill their responsibilities by using the best
practices. internal auditors’ best practices should include the following:
•Build an adequate internal audit staff to support the needs of business
•Structure the internal audit function on a fluid and flexible framework
•Design an enterprise wide risk-based audit program.
•Broaden audit scope to address third-party and vendor risk.
•Combat fraud by advocating ethical conduct throughout the organization.
•Manage information systems risk proactively
The development of internal auditing
The establishment, growth, and evolution of the
contemporary internal auditing profession is closely
intertwined with the history of The Institute of
Internal Auditors (IIA), an organization founded in the
United States in 1941. In the recently released
edition of 60 Years of Progress Through Sharing,
chronicling the history of The IIA

“The IIA’s 60-year history is illustrious and each of the

highlights featured in this 10- year narration
[supplementing the 50-year history of The IIA] have
contributed to the organization that The IIA is today:
 The development of internal auditing
The demand for both external and internal auditing is sourced in the
need to have some means of independent verification to reduce
record-keeping errors, asset misappropriation, and fraud within
business and non business organizations

The origin of auditing goes back to times scarcely less remote than
that of accounting…Whenever the advance of civilization brought
about the necessity of one man being intrusted to some extent with
the property of another, the advisability of some kind of check upon
the fidelity of the former would become apparent.
IT usage in the process of internal
audit
Technology development makes IT become one
of the important support for internal audit

IT rules in internal audit is in Information Processing

Controls, such as:
- General Controls
- Computer Application Controls
- Controls over the Financial Reporting Process
 References
K. H. Spencer Pickett. 2011. The essential guide to internal
auditing. Wiley. West Sussex. ISBN:9780470746936

Razzetti, Eugene A.. 2011. The executive guide to internal

auditing. Author House. Bloomington.
ISBN:9781496914392

Swanson, Dan. 2010. Swanson on internal auditing: raising

the bar. IT Governance. Cambridge. ISBN:9781849280679