Internal Audit Internal Audit Internal Audit Internal Audit

Report Writing Report Writing Report Writing Report Writing

Faculty: CA Ravi Harihara Iyer
Evolution of Internal Auditing
Traditional to.......Technology centric mind-
set
Agenda
ICAI Standards on Internal Audit (SIA)
SIA 4 Reporting
Internal Audit Report Writing
Inform
Action
Record
Persuade
IA Report Writing Objective
ICAI Standards on Internal Audit
SIA 1 Planning an Internal Audit
SIA 2 Basic Principles Governing Internal Audit
SIA 3 Documentation
SIA 4 Reporting
SIA 5 Sampling
SIA 6 Analytical Procedures
SIA 7 Quality Assurance in Internal Audit
SIA 8 Terms of Internal Audit Engagement
SIA 9 Communication with Management
SIA 10 Internal Audit Evidence
SIA 11 Consideration of Fraud in an Internal Audit
SIA 12 Internal Control Evaluation
SIA 13 Enterprise Risk Management
SIA 14 Internal Audit in an IT Environment
SIA 15 Knowledge of the Entity and its Environment
SIA 16 Using the Work of an Expert
SIA 17 Consideration of Laws and Regulations in an Internal Audit
SIA 4 Reporting
f Standard Establish standards on the form and content of the internal
auditors report.
Basic elements of
the audit report
Layout of the internal audit report includes:
Titles, Addressee, Report distribution list,
Period of coverage of the report, Opening or introductory
paragraph, Objectives paragraph, Scope paragraph,
Executive summary, Observations, findings and recommendations,
Action taken report
Date of the report, place of signature and Membership number.
Auditor should
excise due
professional care
Ensure that internal audit report is :
Clear and Factual,
Specific and Concise,
Unambiguous and Timely,
Complies with generally accepted audit procedures in India.
Communication to
management
Different stages of communication are:
Discussion of draft,
Exit meeting,
Formal draft
Final report
Limitation on scope
and restriction on
usage & circulation
Describe the limitation
For intended purpose and limited to distribution list
Internal Audit Report Readers
Audited unit
Management of the audited unit
Executives responsible for the audited unit
Process owners
Larger organization
Executives in the organization
CAE and IA function
Board / Audit Committee
External Auditors
Readers are at various levels with different purposes,
needs and usage time
5 Cs?
10
5 Cs Report Writing Toolkit
Component Description
Condition
Statement of the issue :
What is the key point you want to communicate to your readers?
E.g. Capital expenditure of Rs. 10.8 crores for the hospital equipment
upgrade project were not monitored, and time and budget overruns were
not approved
Criterion
Description of What Should Be:
What is the policy, standard, principle or business practice you are
evaluating?
E.g. Finance policy requires continuous monitoring by the project manager
and VP approval of capital expenditure over Rs. 2 crores
Consequence
Explanation of the Significance or Impact:
What is the impact or materiality? What has gone or could go wrong
as a result of the condition?
E.g. The equipment upgrade project was over budget by 30% and the
contractors paid no penalties
11
5 Cs Report Writing Toolkit
Component Description
Cause
Explanation of What Allowed the Condition to Occur :
What is the root cause of the problem ? Why was the condition
not detected or corrected?
E.g. A project manager had not been appointed to manage the
hospital equipment upgrade project
Corrective
Action
Description of action Necessary to Correct the Condition:
What is the policy, standard, principle or business practice you
are evaluating?
E.g. The Finance manager will require a VPs written approval of all
capital expenditure project plans, monthly reports and cost overruns.
The VP will appoint a project manager for each capital expenditure
project
Heading
Criteria Text

Condition Text
..
Bulleted text
Bulleted text
.
Causes Text.
Effects Text
.
Recommen-dations Text.

Action Plan Text

.
Sample Comment Sheet
Inform
Action
Record
Persuade
Cause
Corrective Action
Consequence
Condition
Criteria
Mapping 5 Cs with Objectives
The Report Writing Process
Workpapers
Detailed Comments Worksheets
Prioritized and consolidated Comments Worksheets
Main Report
1
3
2
4
5
Executive Summary
Right time
In the field
During the review
As soon as you identify to issue to communicate to the client or
complete a section of work
Right way
Prompt review by your manager
Periodic discussion and presentations to clients
Effective use of Comment Worksheets
Quality of Comment worksheets will minimize future rewriting
Tips
State Criteria in positive and measureable terms
Finance policy requires transactions over Rs 50,000 to be approved by
the Division Manager
Accounts should be reconciled by an individual who does not have responsibility for
transaction entry
Clarity on criteria: Sharpen thinking, focus your testing,
significance of findings and relationships
Tips
Statement of Condition should be factual, specific, objective and written in 1
sentence
Transactions over Rs. 50000 were not properly approved by the Divisional
Manager
Accounts reconciliation was not separated from data entry
Examples of weak, vague condition statements:
Control weaknesses were noted
Procedures for reconciling accounts need to be improved
Exceptions were noted in the review of large transactions
Comment sheet Conclusion and evidence
Tips
Choose facts or examples that convey the significance or extent of the
Condition:
Sixty percent of the 20 transactions reviewed were not authorized by the Division
manager
The accounts clerk who enters accounting transactions also does the weekly
reconciliation
Tips
Consider the following questions to describe the Consequence (Risk/impact):
So what?
What has gone wrong or could go wrong as a result of the condition?
What is the probable cost to the company?
What is the risk or extent of the exposure?
How does this affect the clients business or operation?
Tips
Analyze the likely Cause:
Common causes include:
System design or use
Process
Policy
Human error
Resources
Circumstantial factors volume, staffing or emergency
Be specific and descriptive, not judgmental
Tips
Make a Preliminary Corrective Action/Recommendation
Aim at preventing the condition from recurring
Focus on a solution and not a band-aid fix
Organize the report for Impact and Readability
Sections of the report
Objective of the audit assignment
Scope of work
Background information
Overall conclusion / Rating
Key point or results
Recommendations or Action Plans
Appendices/Annexure
Identifying Data for a Report
Title of the Report
Date of the Report
Time period covered
Details of audit team field work and reviewer
Identifying Number of the Report
Distribution list
Sentence Tips
Think Business Newspaper and Blackforest Cake
Put information of greatest significance up front in your report
Follow the lead of newspaper journalists
Headline gets attention
First sentence tells the key point of the story
Think multi-layered CAKE
Keep your highest-level readers favorite flavors at the top
Additional Sentence writing
resources
http://www.youtube.com/watch?v=w183qB0KDFg&feature=related
Deadly Sins
of
Report Writing
1. Filler Phrases
Filler phrases take up space but add no meaning. You can delete
them without changing the meaning of the sentence.
Examples Edited for Conciseness
During our review
We noted that
It was noted
Review of . . . disclosed
It was determined that
This is to inform you that
There is potential that . . . could. .
Develop and implement
procedures to ensure that. . .
Our examination of . . . identified
that . . .
It is understood that
This column is blank because
these phrases need no
replacement. Just delete
them.
2. Redundant Modifiers
Redundant modifiers use unnecessary adjectives or adverbs or turn a simple
adjective into a long phrase.
Examples Edited for Conciseness
Current tools that are available
in the system
Support functions that would be
of assistance to users
In the month of June
On a daily basis
A wide variety of processing
steps
Charges that resulted from
these types of transactions
Competent and responsible
personnel from outside the
organization
System tools
Support functions
In June
Daily
Many steps
Charges resulting from these
transactions
Independent, experienced
personnel
3. Drawn-Out Verbs
Drawn-out verbs turn simple action verbs into a noun phrase. Drawn-
out verbs often contain a noun with the tion ending, and they always
require a preposition.
Examples Edited for Conciseness
Ensure the implementation
of
Perform a verification of
Make an adjustment to
Conduct an analysis of
Do a review of
Perform testing of
Perform a reconciliation of
Implement
Verify
Adjust
Analyze
Review
Test
Reconcile
4. Overstated Language
Overstated language uses longer, more complicated words where
simpler, shorter words would suffice.
Examples Edited for
Conciseness
Utilization
Additionally
Due to the fact that
In order to
Formal written procedures
By means of
At this point in time
Sufficient to provide
reasonable assurance that
Use
Also
Because
To
Written procedures
By; through
Now
Sufficient
5. Empty Words
Empty words offer generalizations and do not stand alone.
Examples Edited for Conciseness
Enhance controls
Improve efficiencies
Used to its full
advantage
Appropriate
Improvement is needed
It appears that
Areas requiring attention
Ensure appropriateness
Some issues
Generally adequate
Inefficient
Several
This column is blank because there are
no direct substitutes for empty words. You
should use concrete and precise words
instead of empty words.
6. Passive Voice
Passive voice uses a form of to be followed by the past
participle and, usually, a prepositional phrase.
Examples Edited for
Conciseness
Procedures are being performed
manually by users
The handling of collections is
performed by the department
Reconciliations of suspense
accounts are performed by the
supervisor
A management review will be
completed of the account
Performance evaluations have been
received by staff
Users perform manual
procedures
The department handles
collections
The supervisor reconciles
suspense accounts
The manager will review
the account
Staff have received
performance evaluations
7. Repetition
Repetition results from using the same word within the sentence or
repeating it from one sentence to the next.
Examples Edited for
Conciseness
Our test of expense reports
revealed that expense reports
contained exceptions.
Supporting documentation was
not attached to support expenses
Procedures are in place to
prioritize program changes and
properly monitor program
changes.
Expense reports
contained exceptions.
Supporting
documentation was not
attached.
Procedures are in
place to prioritize and
monitor program
changes.
Example
Increased utilization of SAP would enhance controls and improve efficiencies.
During the review of the procurement process, we noted that key departmental
personnel are not trained regularly on SAP system features. SAP provides
certain functionalities that facilitate processes; however, we noted that certain
users are not completely familiar with them. As a result, the system is not being
used to its full advantage and some processes are still being performed manually
by the users.
Below are certain tools within SAP that are not being used that we identified
during our review:
Request for Quotation (RFQ) to obtain prices from vendors.
Price analysis for comparison among vendors.
Third party performance metrics such as quality and service levels.
Utilization of the above tools would enhance controls and improve efficiencies.
Management should conduct an analysis of the current tools that are available in
the system. Additionally, it should be determined which of the current tools would
provide the support functions that would be of assistance to users.
Deadly Sins of Wordiness Highlighted
Increased utilization
4
of SAP would enhance controls and improve efficiencies
5
.
During the review of the procurement process, we noted that
1
key departmental
personnel are not trained regularly
5
on SAP system features. SAP provides certain
functionalities
5
that facilitate processes; however, we noted that
1
certain users are
not completely
2
familiar with them. As a result, the system is not being
3
used to its
full advantage and some processes are still being performed manually by the
users
3&6
.
Below are certain
5
tools within SAP that are not being used that we identified
during our review
2&1
:
Request for Quotation (RFQ) to obtain
7
prices from vendors.
Price analysis for comparison among vendors.
Third party performance metrics such as
4
quality and service levels.
Utilization
4
of the above tools would enhance controls and improve efficiencies.
Management should conduct an analysis
3
of the current
2
tools that are available
in the system
2
. Additionally
4
, it should be determined
1
which of the current
5
tools would provide the support functions that would be of assistance
2
to users.
The Sins of Wordiness :
1. Filler Phrases, 2. Redundant Modifiers, 3. Drawn-Out Verbs,
4. Overstated Language, 5. Empty Words, 6. Passive Voice, 7. Repetition
Example of a Concise Narrative
Key personnel are not trained on SAP features
that facilitate certain processes. As a result, the
system is not used to its full advantage. The
following SAP Tools are available to replace
manual processes :
Request for Quotation from vendors
Price analysis to compare vendors quotes
Third-party quality and service metrics
Management should determine which tools can
support system users.
Wordy vs Concise
Original version : 165 words (approx)
Revised version : 60 words (approx)
That is a 60% reduction in the length of the paragraph
Tips
Say it concisely
Mark Twain once apologized to his friend for writing him a long letter
I would have written you a shorter
letter, but I didnt have the time
38
Inform
Action
Record
Persuade
Dont write to get read, write to get Results
Cause
Corrective Action
Consequence (Risk)
Condition
Criteria
Summary
Thank you