Performing the Internal

Audit Engagement
Chapter 1: Performing Internal Audit
Engagements
Chapter objectives
The objectives of this chapter:
• understand and execute the planning phase of an internal
audit engagement;
• understand and execute the performing phase of an internal
audit engagement;
• identify and understand the type of audit approaches the
internal auditor can follow when performing an internal audit
engagement;
• understand the logical flow of the audit methodology
followed.

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Introduction

• The Chapter follows on discussion from Internal Auditing: An introduction in

respect of:
• The International Professional Practices Framework (IPPF)
• Code of Ethics
• International Standards for the Professional Practice of Internal Auditing
(ISPPIA)
• Internal Audit Process
• Internal Control Principles
• This Chapter provides knowledge on the concepts and fundamental principles of
HOW to perform an internal audit engagement with reference to:
• The Risk-based audit approach
• The Cycles-based audit approach

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Performing the Internal Audit Engagement

• What is an IA Engagement?
• An examination performed to verify the correctness of representations.
• What should be – criteria
• What is – condition
• Finding – result of the audit engagement
• Types of audit engagements
• Compliance
• Financial
• Operational
• Systematic Process:
• Phase 1 – Engagement Planning (PS2200)
• Phase 2 – Performing the Engagement (PS2300)
• Phase 3 – Communicating Results (PS2400)
• Phase 4 – Monitoring Progress (PS2500)

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Performing the Internal Audit Engagement (cont.)

• Four levels of performing audit engagements:

• Enterprise-wide
• Strategic level
• Activity specific
• Process specific

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Planning the engagement
• Systematic approach (refer page 4 and 5):

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Management responsibility

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Engagement objectives

General engagement objectives Specific engagement objectives

Guided by internal audit activity and the Linked to activity to be audited and its
audit charter objectives, goals and criteria
Not documented in detail Documented in detail during the audit
Example: Example:
While performing any audit engagement, All personnel leave forms must be
the efficiency and effectiveness of activities authorised (activity objective)
must be considered Determine that all leave applications are
authorised by management (engagement
objective)

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Applicable Standards

• Standard 2210 (engagement objectives)

• Practice Advisory 2210–1
• Practice Advisory 2210.A1–1 (risk assessment)
• Standards 2130.A1 (Control)
• Practice Advisory 2130-1
• Standard 2220 (Engagement Scope)
• Standard 2240 (Engagement work programme)
• Practice Advisory 2240-1

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Internal Control Evaluation

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Performing the Enagement

Two important steps:

1. Identifying, analysing and evaluating the information and
evidence by performing engagement procedures; and
2. Recording the above.

Refer to Figures 1.4 and 1.5 (Page 11 and 12)

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Applicable Standards

• Standard 2300 (performing the engagement)

• Standards 2310 (identifying information)
• Standards 2320 (analysis and evaluation)
• Practice Advisory 2300-1
• Practice Advisory 2320-1
• Practice Advisory 2320-2
• Practice Advisory 2320-3
• Practice Advisory 2320-4

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Recording evidence

Refer to Figure 1.6 (Page 17)

• Working Papers and Working Paper Files

• Examples of working papers – refer to Figures 1.4, 1.5, 1.6
• Applicable Standards:
• Standard 2330 (documenting information)
• Practice Advisory 2330-1
• Practice Advisory 2330.A1-2
• Practice Advisory 2330.A2-1

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Internal Audit Engagement Process

Activity objectives/goals and standards (criteria)


Engagement objectives
(based on client objectives and risks identified)

Engagement criteria Planning

Engagement scope

Engagement programme

Engagement procedures

Evidence
Performing

Findings

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Audit Methodology

• Risk-based Approach
• Measurement of risk:
• Impact
• Likelihood
• Risk categories
• Inherent Risk
• Residual Risk

Inherent risk I L Control Residual risk I L

Building destroyed in fire H L Fire extinguishers Building can still ignite M L
Employee on leave M H Clock cards are Supervisors do not M L
without approval reconciled with execute control
physical attendance

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Audit Methodology
• Cycle-based Approach
• Refer to Figure 1.8 (Page 22)
Revenue
and
receipts

Financing and Human Inventories,

investment resources and production
activities payroll and
warehousing

Purchases
and
payment

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Audit methodology
• Assurance engagements

• Compliance audits
• Financial audits
• Operational audits

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