Group#1

Introduction
◦ MEPCO is an electric distribution company which supplies electricity to 13
districts of South Punjab, Pakistan.
◦ This company generates electric power from water (hydro-electric power).
◦ It was founded in 1998.
◦ It has been granted license by the NEPRA for distribution of electricity.
Internal Audit Divisions
Domestic
Consumer
Billing
Audit Commercia
l
Internal
Audit Revenues
Budget
Financial Expenses
Audit
Stock Meters and
verification transformer
s s
SATTAR & CO
External Auditor
 Audit
Appointment Framework

Audit Fee
Assurance Engagement

Duration
SATTAR & CO Audit steps

Risk Test of Legal

Verifications Assessment Controls Regulations
External Audit
◦ They work as a team.
◦ Every member works according to its scope.
◦ The junior report their works to senior and senior create document of every
step because ICAP checks documents of audits on sampling basis.
◦ Auditor withdraws if management does not give proper information
USMAN ASHRAF
BAFM-19-65
 Internal Controls
◦ MEPCO has to establish a set of internal controls according to the nature of its objectives and
operations. The ultimate objective for establishing these controls remains:

Integrity of information
compliance with rules
safeguarding of assets
economical and efficient operations
Internal Controls Checks
Complete and Accurate Books and Records
The books and records of the MEPCO Wings/Divisions shall be kept in a complete and accurate
manner, which fairly reflect their activities

Delegation of Powers
MEPCO exercises control over its activities through delegation of authority. Functional Heads
should also ensure that their function's approval authorities are understood and not exceeded

Cash Disbursements funds should be kept in a secure location and a surprise count should be
performed periodically
 Invoice Verification
Verification by the Purchaser
The goods and services covered by the invoice were satisfactorily procured/performed and in
conformance with the terms of the contract. The quantities, prices and payment terms are correct as
stated in the invoice.

Verification by the Accounts Section

The accounts section staff should also check accuracy of the invoices with reference to purchase orders.
Payments should be made only against original invoices
 Materials Ordering and Handling
Segregation of Duties An underlying control principle is segregation of duties so that no one individual has
approval authority over all the activities of ordering, receiving, storing and issuing

Authorized Personnel to Order Purchases A list of personnel authorized to order materials should be
reviewed periodically.

Access to Store Rooms Access to store rooms should be limited to the authorized personnel. The personnel
authorized to sign gate passes should be kept to a minimum.

Inventory Control Dead stock registers for durable goods and stock registers for consumable stores should be
maintained.

Fixed Assets A register of fixed assets should be maintained by each unit/department using the approved format.
 Fraud Indicators
◦ Inability to identify responsibility

◦ Changes in an employee's behavior.

◦ Vague and confusing procedures

◦ Lack of adequate supervision

INTERNAL AUDIT
PROCESS
Afeefa Habib BAFM-19-07
Internal Audit Assignments
◦ to assess the integrity of financial and other information.
◦ to assess the adequacy of risk management, and the controls over public
property, revenues and expenditures.
◦ to assess the degree of compliance with objectives, policies, plans, procedures,
laws, and regulations.
◦ to assess the extent to which there is management with due regard to economy,
efficiency and effectiveness.
Internal Audit Process

The internal audit process includes the following broad phases of work:
1.Audit office planning phase.
2.Assignment planning.
3.Review phase.
4.Evaluation phase.
5.Verification phase.
6.Reporting phase.
1.Internal Audit Office Planning Phase
◦ The first task is to plan for the
Internal Audit Division as a whole.
◦ The second task is to develop a
strategic plan.
2. Internal Audit Assignment Planning
Phase
◦ Scope and Objectives
◦ Developing Specific Plan
◦ Documenting Background
Information
◦ Identify Significant Financial
Areas
◦ External Reviews
◦ Risk Assessment
3.Internal Audit Review Phase

◦ Gathering general working

information
◦ Studying Regulations
◦ Limited Testing of Management
Controls
4.Internal Audit Evaluation Phase
◦ Ensure the utilization of resources in compliance with regulations or other
authorities.
◦ Protect funds and other public property from losses due to fraud,
mismanagement or inefficiency.
◦ Provide data that will assist managers in ensuring that what is planned is
accomplished.
◦ Provide for full and accurate disclosure of results to a higher level of authority.
5.Internal Audit Verification Phase
◦ Auditor shall adopt analytical procedures
◦ Auditor will conduct substantive tests.
◦ Audit program will determine cause and effect

The last step in the process is reporting in written form that will
be based on the opinion of the Auditor.
AYESHA SHAFIQ
BAFM-19-05
 INTERNAL AUDIT WORKING
PAPERS
Introduction
Working papers are files established by the auditors during planning and execution of an audit.

Purpose of Working paper:

 To preserve information of continuing importance during and after report writing

 working paper files allow senior auditors to satisfy

 Independent commercial auditors and statutory auditors of the Auditor general of Pakistan may
also examine the internal audit working papers
 The audit working papers should contain the following
information:
 Audit planning information such as the size, organization, applicable laws and main functions of
audited units.
 An assessment of the internal controls of the audited units.
 Audit program for each audit area such as cash book, payroll, inventory, etc.
 Details of the audit procedures performed by each member of the audit team.
 Evidence that the work of the audit team has been properly reviewed.
 A summary of audit findings.

Qualities of Good Working Papers

Complete Concise Uniform

 Qualities of Good Working Papers

Neat Electronic

Working Paper Techniques

• Prior years' working papers should be reviewed

• working paper package can be organized as soon as the audit program has been completed

• A review of each of the audit elements in the audit

• Changes in permanent file

Types of Working Papers
• Maintained in binders

• Schedules, analyses, documents, flowcharts, and narratives should be filed in a standard

file binder

Indexing

• Indexing should be simple and have flexibility

• indexing system using decimal positions for identifying different sections

• indexing allows insertion of new working papers without interrupting the numbering scheme.
 Schedules and Analyses
• Schedules and analyses are useful for identifying statistical trends, verifying the accuracy of data,
developing projections or estimations

 An explanation of its purpose (refer audit steps).

 The methodology used to select the sample, make the calculation, etc.
 The criteria used to evaluate the data.
 The source of data and timeframe considered.
 A summary of the results of the analyses.
 The internal auditors' conclusion.

Documents

• Copies or actual samples of various documents can be used for clarification, and as physical evidence
to support a conclusion
These documents can be

Memos
Reports
Electronic files
Computer printout
Procedures
Forms
Invoices
Flowcharts
Contracts

Process Write-ups and Flowcharts

• Write-ups are often easier to use, and should be used

• Write-ups would be lengthy, and description of related control points is difficult to integrate in the
narrative, flowcharting
Process Write-ups and Flowcharts

• Flowcharts conveniently describe complex relationships because they reduce narrative

explanations to a picture of the system

Interviews
• Verbal information is obtained through formal interviews

• Any verbal information that is likely to support a conclusion in the audit working papers
should be documented

• Interviews are useful in identifying problem areas, obtaining general knowledge of the
audit subject
Observations

• If observations can be used to support any conclusions, then they should be documented.

• Useful for physical verifications

 When was it observed?

 Where was the observation made?
 Who accompanied the auditor during the observation?
 What was observed?

Findings
• All audit findings should be documented in the working papers

• Findings should be summarized in the working papers whether or not they are to be included
in the audit report. The auditor discovering the situation should document all findings
immediately.
Organizing Working Paper Files

Audit working paper files should be organized in the following manner:

i. Permanent Files.
ii. Current Files.

Custody

• The Permanent Files should remain in the custody of the Deputy Chief Auditor at the Internal
Audit division
• The Current Files should remain with the field auditors during the currency of audit

• Current audit report file should also handover to the Deputy Chief Auditor at the Internal Audit
Division.
MUHAMMAD HARIS
BAFM-19-44
Audit perform by Mepco
• Manual audit is performed in Mepco instead of software base.

• Lack of expertise in in using software's to perform audit.

Mepco up to date with industry

◦ Slow updation with technology

◦ Lack of human resources

Detection of errors
Mepco have 4 sections for detecting errors in financial documents.
◦ Admin section
◦ Revenue section
◦ Inspection report (IR)
◦ Stock verification
MUHAMMAD UMAID
BAFM-19-50
Latest development in auditing standard
• IAS'S are not implemented in MEPCO

• Every rule is self made

• Framework is not advance

What you do after internal audit
Internal audit is completely different in MEPCO
Skills,
1 analytical
2 observation
3 drafting
 Ways of internal auditor
interaction with external auditor
◦ Commercial audit

◦ Director general audit

ZIAULLAH

BAFM1972
Responsibilities Of Internal Audit
Officers
◦ Introduction: The internal audit division of WAPDA shall be headed by the Chief Auditor WAPDA who
shall be assisted by three Deputy Chief Auditors. Each Deputy Chief Auditor shall have a Senior Audit
Officer who supervises the work of field auditors comprising of Audit Officers, Assistant Audit Officers
and Audit Assistants. The field auditors shall be called Audit Parties and include Stock verifiers where
needed.
Responsibilities of the Chief Auditor
a. Audit work fulfills the specific and general purposes and responsibilities approved by WAPDA
Authority/Ordinance.
b. Directs and coordinates analysis of operating departments and functions and makes recommendations to
promote maximum managerial effectiveness and operational efficiency when appropriate.
c. Internal audit resources are efficiently and effectively employed.
d. Audit work conforms to the Standards for the Professional Practice of Internal Auditing applicable in
Pakistan.
Responsibilities of Deputy Chief
Auditors
◦ a. Developing audit objectives, plans, and scope consistent with the divisions/wings objectives, the
assessment of audit risk inherent in the auditable segments, and the audit needs and priorities set by the
WAPDA Authority or the General Managers Finance.
◦ b. Scheduling audits, determining the resources that are necessary, and seeing that the approved audit plan
is accomplished to the extent staffing allows.
◦ c. Communicating with those who need to know about audits and interfacing with personnel throughout
WAPDA, particularly those being audited, to resolve audit issues and achieve the desired corrective actions.
◦ d. Supervising audits and reviewing the work performed to ensure the adequacy of audit scope, the
adequacy of tests performed, and the accuracy of conclusions reached. Audit work will also be reviewed for
compliance with policies and procedures and the Standards for the Professional Practice of Internal Audit
in the Government independent entities. Supervision is a continuing process, beginning with planning and
ending with the conclusion of the audit assignment.
Responsibilities of Field Audit Officers
(Audit Parties)
◦ Preparing working papers for the entire work done.
◦ Pointing out any need for revision to the audit program in the light of facts.
◦ Interacting with the auditee focal person and seeking any clarifications needed.
◦ Communicating initial audit observations during the course of the audit.
◦ Preparing a brief for the Deputy Chief Auditor for discussion with the General Managers Finance on the
last day of audit.
◦ Piecing together the material in the working papers as basis for the audit report.
◦ Following up audit observations and send further comments to the replies received from the auditee.
◦  Finalizing the audit observations either for settlement or for report of the Deputy
THANK YOU!