Professional Documents
Culture Documents
BKAA 3023 - Topic 8 - Internal Auditing Performance and Compliance Audit
BKAA 3023 - Topic 8 - Internal Auditing Performance and Compliance Audit
CHAPTER 8
LEARNING OBJECTIVES
Explain the role of internal auditors in financial
audit i.e. scope, objective and nature of internal auditing Discuss the similarities and differences between internal and external auditor Explain the concept, objective and scope of performance audit Discuss criteria for evaluating efficiency and effectiveness Discuss the objective and scope of compliance audit
1. INTERNAL AUDIT
provides flexibility to meet company needs. Different company vary in the extent and area of focus of int. auditing
methodology in performing audits, and use audit risk model and materiality in deciding the extent of their test and evaluating results
External auditor (EA) significantly reduces control risk and substantive test if internal auditor are effective. EA typically consider IA effective if they are independent, competent & well trained, and have performed relevant audit tests of the internal control and financial statement.
2. PERFORMANCE AUDIT
historical info was correctly recorded while performance audit on effectiveness and efficiency of operation Distribution of report financial audit report goes to user of fin statement, performance audit goes only to mgmt Inclusion of non-financial areas financial audits are limited to matters that affect the fairness of presentation, performance audit cover any aspect of efficiency and effectiveness.
organization. E.g. cash disbursement, cash receipt, and payroll functions. Advantage - permitting specialization by auditors. Disadvantage failure to evaluate interrelated functions.
Organizational Audits deals with an entire organizational
unit, such as department, branch or subsidiary. Emphasis on how efficiently and effectively function interact.
Special Assignments arise at request from mgmt, e.g.
reducing non value added activities, determining the cause of ineffective IT system, investigating possibility of fraud or making recommendations for reducing the cost of manufacture product.
objective
The major difficulty found in performance auditing is in deciding on specific criteria for evaluating efficiency and effectiveness. This criteria is also known as key performance indicator (KPI). Sources of criteria: Historical performance Benchmarking Engineered standards Discussion and agreement
3. COMPLIANCE AUDIT
The objective of compliance audit is to determine whether an auditee complies with specific procedures established by higher management within an entity or by some regulation authority.
Purpose of audit to determine the extent to which rules,
policies, laws, covenants, or governmental regulations are followed by the party or entity being audited The criteria used for evaluating compliance would be based on the set of rules that the audited needs to comply with and would therefore vary from case to case.