1. WHAT IS INTERNAL AUDIT?
IIA DEFINITION
“Internal auditing is an independent appraisal
activity established within an organisation as
a service to the organisation. It is a control
which functions by examining and evaluating
the adequacy and effectiveness of other
controls.”
- IIA Statement of Responsibilities

2. SAS 500 (ISA 610)
CONSIDERING THE WORK OF
INTERNAL AUDIT
Definition. “An appraisal or monitoring activity
established by management and the directors for the
review of the accounting and internal control systems
as a service to the entity.
It functions by,amongst other
things,examining,evaluating and reporting to
management and the directors on the adequacy and
effectiveness of components of the accounting and
internal control systems”
 dropped “independent”
 added “accounting” to IIA definition.

3. FUNCTIONS OF INTERNAL AUDIT
Review and report upon:
 Control environment as a whole
 The process by which risks are identified,
analysed and managed
 Controls over key processes / operational and
functional
 The reliability and integrity of corporate
management info
 The safeguarding of assets
 Compliance with relevant legislation

4. DIFFERENCES INTERNAL / EXTERNAL
AUDITORS
Internal External
 Scope – determined  Scope – determined
by management by statute
 Approach – ensure  Approach – opinion
all systems efficient on financial
provide accurate statements
management info
 Responsibility –to  Responsibility - to
management shareholders

5. ASSESSMENT OF INTERNAL AUDIT
ISA 610
Factors to consider:
 Organisational Status – reporting line/ no
operating responsibility? etc
 Scope – terms of reference
 Due professional care - work planned,
reviewed, working papers etc
 Technical competence – previous experience,
quality of audit reports, qualifications etc.

6. INTERNAL AUDIT ROLE – CORPORATE
GOVERNANCE
Accountability & Audit
 Reviewing internal control and monitoring
 Risk -assist in identifying risks and developing
models to prioritize and manage them
 Organisational control – review structure of
organisation – cost/benefits of change

7. RISK MANAGEMENT – ROLE OF
INTERNAL AUDIT
Types of Risk:
 Business e.g competition
 Financial e.g liquidity
 Compliance e.g environmental regulations
 Operational e.g poor service
Need to:
 Identify- method/frequency?
 Assess – High /Low etc
 Deal with- accept,avoid etc
 Monitor

8. RISK MANAGEMENT – ROLE OF
INTERNAL AUDIT
System of Internal Control requires proper
risk management and organisational
control. Internal audit assist by:
 Objective assurance on adequacy of
RM/control
 Improve identification / management of
risks
 Strengthening control framework

9. OUTSOURCING INTERNAL AUDIT
Benefits Disadvantages

10. SAS 480 (ISA 402) SERVICE
ORGANISATIONS
Main Proposals
 Planning – are outsourced activities relevant?
 Document contractual terms
 Effect on IR,CR and DR
 Evidence – review records held by client /
monitoring procedures
 Relying on reports by service organisations
auditors – Design of system or effectiveness
too?
 If insufficient – qualify re scope

11. EXPERTS OF USE TO AUDITORS
 Surveyors – property valuation
 Geologists/ Chemists – stock or oil / gas
reserves
 Solicitors – pending litigation
 Actuaries – pension fund valuations

12. ISA 620 USING THE WORK OF AN
EXPERT
Need for expert depends on:
 Materiality of item
 Risk of misstatement
 Quality/quantity of other evidence
Scope and assessment of work
 Assess competence e.g. qualifications
 Scope agreed – objectives,info,report
 Examine assumptions and methods used
 Report – compatible with other evidence,

13. FACTORS TO CONSIDER RE EXTENT
OF RELIANCE ON INTERNAL AUDIT
 Organisational status of internal audit
 Scope of internal audit function
 Technical competence
 Materiality /Risk of areas involved
 Level of judgement required
 Sufficiency of complementary evidence
 Specialist skills of internal audit
 Due professional care
 level of planning /supervision of internal audit work
 review working papers
 review previous audit reports

14. INTERNAL AUDIT & CORPORATE
GOVERNANCE
COMBINED CODE
 Going Concern
 Internal Control
 Directors Remuneration
TURNBULL
Internal Control
 Review effectiveness of internal control
 Review regular reports on internal control
Risks
 Identify
 Control – training, avoidance measures
 Monitor

15. EXTERNAL ASSISTANCE TO MANAGEMENT
 Management letter
 Offer other services e.g tax,consultancy
 Wider expertise – other companies in same
industry
 May adopt business risk approach that can
assist management with corporate
governance responsibilities.

16. INTERNAL AUDIT – USEFUL TO
MANAGEMENT
 Internal focus on risks / controls
 Assist management with corporate
governance responsibilities
 May accept greater responsibility than
external re fraud detection
 VFM / operational audits assist in improving
efficiency
 Internal audit reports more timely than
external