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Z 3h 2 - application of ppf in practice

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IIA's PPF - How did we address them and practice in day to audit ?

IIA's PPF - How did we address them and practice in day to audit ?

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  • 1. Application of Professional Practices Framework in Practice IIA Madras M Rajeshwaron Dec 2005
  • 2. “Internal Audit Standards” in my opinion are Values & Beliefs / Way of life in Internal Audit and not just Rules / Prescriptions! IIA Madras M Rajeshwaron Dec 2005
  • 3. “Effectiveness of Implementation” Role of…..  Internal Auditor  CEO / CFO  Audit Committee  IIA Leaders …… is vital IIA Madras M Rajeshwaron Dec 2005
  • 4. Application – Different Scenario! Corporates A. Senior level Professional responsible for Internal Audit Status No / Little awareness ! Prescription Self conviction / Determination / Thorough understanding Presentations to Audit Stake Holders Gaining Acceptance Drafting an “Audit Charter” Implementation & Monitoring IIA Madras M Rajeshwaron Dec 2005
  • 5. Application – Different Scenario! Corporates B. Internal Audit co-ordinated by a by Junior level Auditors Status  No / little awareness  Interested in PPF implementation – Require guidance!  Organisation not informed of the importance of PPF, New Definition etc. Prescription  Seek IIA – Leaders’ support & do all the activities as in ‘A’ IIA Madras M Rajeshwaron Dec 2005
  • 6. Application – Different Scenario! Corporates C. Group of Companies Status  Different companies with different status!  Different Audit Committees / CEOs  With or without a Group level Internal Audit co-ordinator! IIA Madras M Rajeshwaron Dec 2005
  • 7. Application – Different Scenario! Corporates C. Group of Companies…. Prescription  Group level Head should be a seasoned career internal auditor  He / She should convince ACs / CEOs of different Companies  Gain acceptance / put a system in place with Negotiables / Non-negotiables  Create a strong ‘Group Audit Forum’ / Develop Activities relating to ‘Standards’ IIA Madras M Rajeshwaron Dec 2005
  • 8. Application – Different Scenario! D. SMEs Status  No Internal Audit  Blissfully unaware of IIA / PPF etc. ! Prescription  IIA leaders to identify such SMEs & have programs for educating, guiding and making things happen!  SMEs could seek the help of IA Practitioners for installing the system. IIA Madras M Rajeshwaron Dec 2005
  • 9. Top 10! Standards that require attention! • Independence & Objectivity • Competent Advice / Assistance • Continuing Professional Education • Quality Assurance & Improvement • Establishing Measures • Planning • Reporting to Board & Senior Management • Relationship with Audit Committee • Role in Risk Management • Ethical culture IIA Madras M Rajeshwaron Dec 2005
  • 10. Requirements of the Standard IIA Madras Focus M Rajeshwaron Relevant practical issues to be addressed Dec 2005
  • 11. 1110 – Independence & Objectivity Focus: Organisational Status / Objectivity The Internal audit activity should be independent and internal auditors should be objective in performing their work The Chief Audit Executive should report to a level within the organisation that allows the internal audit activity to accomplish its responsibilities The CAE administratively reports to the CEO of the company and functionally to the Chairman of Audit Committee IIA Madras M Rajeshwaron Dec 2005
  • 12. 1110 – Independence & Objectivity Issues Present level of Internal Auditor in our organisations ? Responsible for two functions (Resource Utilisation Objective!) Conflict of interest? Priority shift between those functions? Budget constraints coming in the way? CEO’s time for supervision a constraint? – Delegation to CFOs? Audit Committee’s time allocation for Internal Audit? Why does the status of Internal Audit often seem to be a direct consequence of organisational ledership attitudes? (Long standing IA functions : JC Penny & Ford Motor) IIA Madras M Rajeshwaron Dec 2005
  • 13. 1130 A2 – Impairments to Independence or Objectivity Focus Assurance engagements for functions over which the Chief Audit Executive has responsibility should be overseen by a party outside the internal audit activity. Issues  Who will be the party outside the Internal Audit Activity?  Level of his intervention?  If Field Auditors who report to the CAE were to do the audit?  Escalation of issues to Audit Committee from his (CAE) own areas? IIA Madras M Rajeshwaron Dec 2005
  • 14. 1210 A1 – Competent Advice / Assistance Focus  CAE should obtain competent advice and assistance if the internal audit staff lacks the knowledge, skills, or other competencies needed to perform all or part of the engagement  CAE should assess the competency, independence & objectivity of the outside providers. IIA Madras M Rajeshwaron Dec 2005
  • 15. 1210 A1 – Competent Advice / Assistance Issues  Normal approach to ‘oursourcing’ Internal Audit vs the above approach  External Auditors doing internal audit assignments  Internal processes for effective evaluation of outside service providers  GAP – Guest Audit Pool as a strong Resource!  Strong Business Knowledge IIA Madras M Rajeshwaron Dec 2005
  • 16. 1230 - 1- Continuing Professional Development Focus Internal Auditors should enhance their knowledge, skills and other competencies through continuing professional development IIA Madras M Rajeshwaron Dec 2005
  • 17. 1230 - 1- Continuing Professional Development Issues  Normal Training Plan in an organisation vis-à-vis – IA! Training in Internal Audit: * Continuous Involvement in Professional Associations * Knowledge on Standards / its interpretation / Application * Technology Adoption (Audit Tools, Risk Assessment Models) * Research Projects on various aspects of IA * Certification for Audit Staff (CIA / CISA etc) IIA Madras M Rajeshwaron Dec 2005
  • 18. 1300 - Quality Assurance and Improvement Programme (QA & IP) Focus The Chief Audit Executive should develop and maintain a quality assurance and improvement program that covers all aspects of the internal audit activity and continuously monitor its effectiveness IIA Madras M Rajeshwaron Dec 2005
  • 19. 1310 -1 – Quality Programme Assessment Focus This programme includes periodic internal and external quality assessments (once in 5 years) and on-going internal monitoring. Each part of the programme should be designed to help the internal auditing activity add value and improve the organisation’s operations and to provide assurance that the internal audit activity is confirming with the standards. IIA Madras M Rajeshwaron Dec 2005
  • 20. 1300 -1 – Quality Assurance and Improvement Programme (QA & IP) 1310 – 1 – Quality Programme Assessment Issues  Do we have a structured system?  What is the system? ISO – 9000?  How are we evidencing the continuous improvement in the Internal Audit Division? (Kaizen etc)  How do we communicate the results of such Quality System to Top Management?  Who will do the review (Internal / External)?  Do we have a manual on this? IIA Madras M Rajeshwaron Dec 2005
  • 21. 1311 -2 – Establishing Measures Quantitative Metrics and Qualitative Assessments to support reviews of Internal Audit Activity performance Focus  Identifying critical performance categories: * Audit stake holders satisfaction * Audit Processes * Innovation & capabilities of internal audit (See chart in next slide) IIA Madras M Rajeshwaron Dec 2005
  • 22. Performance Categories Internal Customers • Board / Audit Committee •Senior Management •Operating Management External Customers •Regulators Professional Practices Framework •Community Corporate and Internal Audit Strategies •Corporate Customer Laws and Regulations •External Audit Internal Audit Process •Risk Assessment / Audit Planning •Planning & Performing the Audit Engagement •Reporting Innovation and Capabilities •Training •Technology •Industry Knowledge IIA Madras M Rajeshwaron Dec 2005
  • 23. 1311 -2 – Establishing Measures… Issues  Are we trying to use GAIN – Parameters?  Level of contribution to the improvement of Risk Management and controls & Governance processes factored?  Customer Feed back obtained? Matrix prepared?  Achievement of key goals and objectives depicted?  Evaluation of progress against Audit Activity Plan done?  Improved staff productivity substantiated?  A Balance Score Card Frame Work in place? (See chart next slide) IIA Madras M Rajeshwaron Dec 2005
  • 24. Balance Score Card for Internal Audit Board / Audit Committee • Audit Committee satisfaction survey • Role of internal auditing viewed by audit committee • Audit committee risk concerns Internal Audit Process Management and Auditees •Auditee satisfaction survey results •Percent of audit recommendations implemented •Number of management requests •Management expectations of internal auditing Professional Practices Framework Corporate and Internal Audit Strategies Laws and Regulations • Importance of audit issue • Completed vs. planned audits • Number of major audit findings • Amount of audit savings • Quality assurance techniques developed • Number of repeat findings • Days from end of field work to report issurance •Number of complaints about audit Innovation and Capabilities •Staff experience •Training hours per internal auditor •CAE reporting relationship – functional •Percent of certified staff IIA Madras M Rajeshwaron Dec 2005
  • 25. 1311 -2 – Establishing Measures… Issues…  Increased cost efficiency of the audit process highlighted?  Increased number of action plans for process (IA) improvements captured?  Adequacy of engagement planning / supervision documented?  Effectiveness in meeting the needs of stake holders measured? (Next year by this time IAs have to report these to ACs – Clause 49) IIA Madras M Rajeshwaron Dec 2005
  • 26. 2010 –A1 – Planning Focus The Chief Audit Executive should establish risk based plans to determine the priorities of the internal audit activity consistent with the organisation’s goals. Issues  Have we adopted the required Technology to do this Risk Ranking?  Do we have access to the organisation’s strategy, Goals, Business Plan etc.,?  Does the organisation have a risk management system in place or not? Has it been factored in our risk prioritation?  Do we consider Auditee Management, a partner in this exercise? IIA Madras M Rajeshwaron Dec 2005
  • 27. 2060 – Reporting to Board & Senior Management Focus  The Chief Audit Executive should report periodically to the Board and Senior Management on the Internal Audit activity’s purpose, authority, responsibility & performance relaltive to its plan.  Reporting should also include significant risk exposures and control issues, Corporate Governance issues, and other matters needed or requested by the Board / Senior Management IIA Madras M Rajeshwaron Dec 2005
  • 28. 2060 – Reporting to Board & Senior Management.. Issues  AC’s dual role – IA oversight responsibility & Internal Control System  Isolated ‘control’ issues reported often? (Risks vs. Risk Management Process)  Overall assurance statements not made (data inadequacy with audit)?  ‘Materiality concept’ defined, discussed & agreed? IIA Madras M Rajeshwaron Dec 2005
  • 29. 2060 – Reporting to Board & Senior Management.. Issues…  Significant Material issues * Conditions dealing with irregularities * Illegal Acts * Errors * Inefficiency * Waste * Ineffectiveness * Conflicts of interest * Control weaknesses IIA Madras M Rajeshwaron Dec 2005
  • 30. 2060 -2 – Relationship with Audit Committee Focus Inter-locking goals of Internal Auditor & Audit Committee Effective & strong working relationship only will achieve this * Internal Auditor as an ‘Advisor’ to Audit committee * Audit Committee who has an ‘oversight responsibility’ for internal Audit Issues 20 Questions Directors should ask about Internal Audit (IIA Research) - click This should form part of the ‘Internal Auditor’s initial presentation to the Board / Audit committee / Senior Management in the organisation Belief is that when IA Stds. are followed , AC can discharge its responsibility more effectively. IIA Madras M Rajeshwaron Dec 2005
  • 31. 2100 -3 – Internal Auditors’ role in Risk Management Process Focus The Internal Audit activity should evaluate and contribute to the improvement of risk management, control and governance processes using a systematic and disciplined approach Issues  Primary responsibility – Management  Support / Facilitating Role – Internal Audit  Risks - Strategic direction – Board - Ownership – Senior Management Residual Risk Acceptance – Executive Management Monitoring Activities – operating management Periodical Assessment / Assurance – Internal Audit IIA Madras M Rajeshwaron Dec 2005
  • 32. 2100 -3 – Internal Auditors’ role in Risk Management Process… Issues….  Factors to be considered while adopting the standard * Culture of organisation / Entity’s size * Ability of Internal Audit * Local Conditions / Customs of the Country IIA Madras M Rajeshwaron Dec 2005
  • 33. 2100 -4 – Role in Organisation without a Risk Management Process Focus Consulting Role – Internal Audit  Improving fundamental processes Issues  What adds value to ‘Risk Services’ by IA? - Measurement - Completeness - Process Assurance - Second look - Objectivity IIA Madras M Rajeshwaron Dec 2005
  • 34. 2100 -7 – Environmental Risks Focus  SHE Audits Issues  Do we have a Technical Audit system?  Normally Safety Audits are with the Safety Department  No reports placed at the Board by them  Should be an integral part of Internal Audit to effectively communicate risks to Top Management / Board  Competency building efforts within Internal Audit? IIA Madras M Rajeshwaron Dec 2005
  • 35. Other Risk related Standards 2100 – 5 - Regulatory Compliance 2100 – 6 - e-commerce activities 2100 – 8 - Privacy Framework 2100 - 9 - Application System Reviews 2100 - 10 – Audit Sampling 2100 - 1,2, 11-- Risk Elements (Definition, Information Security, IT Controls etc.) IIA Madras M Rajeshwaron Dec 2005
  • 36. 2130 – Ethical Culture Focus Governance Related Internal Audit as an “Ethics Advocate” Issues Do we look at this at present? Do we see the connectivity & shift in focus? * Fraud – Investigation role * Ethics – Advocacy role IIA Madras M Rajeshwaron Dec 2005
  • 37. 2130 – Ethical Culture Key Organisational Ethics Activities IA’s effective Role - Set an ethical tone at the top Promote strong and effective internal controls  Establish a whistle blower policy Prevent reprisals  Provide ethics & fraud training for staff  Implement a confidential tips hotline - Create a culture of doing the right thing IIA Madras M Rajeshwaron  Dec 2005
  • 38. 2130 – Ethical Culture  IA can play a ‘Change Agent’ role : - Establishing a ‘whistle-friendly’ accountable Corporate Culture? - Educating the Corporation about the ‘risk of not knowing what is going wrong!’  Have we built the required credibility and got the competency to address this area? IIA Madras M Rajeshwaron Dec 2005
  • 39. 2600 – Management’s Acceptance of Risks Focus When the Chief Audit Executive believes that senior management has accepted a level of residual risk that is unacceptable to the organisation, the Chief Audit Executive should discuss the matter with Senior Management If the decisions regarding residual risk is not resolved, the Chief Audit Executive and senior management should report the matter to the board for resolution. IIA Madras M Rajeshwaron Dec 2005
  • 40. 2600 – Management’s Acceptance of Risks… Issues  Are we doing this?  Are issues getting dropped at the Executive Management level?  Level of Support / Freedom provided by Audit Committee in this regard?  Residual Risk – Assessment – How scientific is it ? IIA Madras M Rajeshwaron Dec 2005
  • 41. All these mean…… Passion and thirst for excellence! Strong belief in IIA Standards High level of Professionalism Effectiveness in energising,educating, convincing and gaining acceptance from all stake holders Ruthless Execution of a robust audit system Sustaining the Best Practices adopted - A WILL TO DO ! IIA Madras M Rajeshwaron Dec 2005
  • 42. “Will to do” ±ñ½¢Â ±ñ½¢Â¡íÌ ±öÐÀ ±ñ½¢Â¡÷ ¾¢ñ½¢Â÷ ¬¸ô ¦ÀÈ¢ý -¾¢ÕìÌÈû The will to do achieves the deed When mind that wills is strong in deed -Thirukkural IIA Madras M Rajeshwaron Dec 2005
  • 43. Thank You & Any Questions Please? IIA Madras M Rajeshwaron Dec 2005
  • 44. 20 Questions Directors ask about Internal Audit 1. 2. 3. 4. 5. 6. 7. 8. Should we have an Internal Audit Function? What should our Internal Audit function do? What should be the mandate of the Internal Audit Function? What is the relationship between Internal Audit and the Audit Committee? To whom does Internal Audit report administratively? How is the Internal Audit function staffed? How does Internal Audit get and maintain the expertise it needs to conduct its assignments? Are the activities of Internal Audit appropriately coordinated with those of external auditors? IIA Madras M Rajeshwaron Dec 2005
  • 45. 20 Questions Directors ask about Internal Audit 9. How is the Internal Audit Plan developed? 10. What does the Internal Audit Plan not cover? 11. How are internal audit findings reported? 12.How are Corporate Managers required to respond to Internal Audit findings and recommendations? 13. What services does Internal Audit provide in connection with fraud? 14. How do you assess the effectiveness of your internal audit function? 15. Does Internal Audit have sufficient resources? 16. Does Internal Audit function get appropriate support from the CEO and Senior Management Team? IIA Madras M Rajeshwaron Dec 2005
  • 46. 20 Questions Directors ask about Internal Audit 17. Are you satisfied that this organisation has adequate internal controls over its major risks? 18. Are there any other matters that you wish to bring to the Audit Committee’s attention? 19. Are there other ways in which internal audit and the audit committee could support each other? 20. Are we (the Audit Committee) satisfied with our Internal Audit Function? back IIA Madras M Rajeshwaron Dec 2005