Audit Report and Reporting to

Audit Committees

Pipalia Singhal & Associates

Chartered Accountants
 Meaning of “Report”
• Account given or opinion formally expressed
after investigation or consideration or
collation of information(Source: The Concise Oxford Dictionary)

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 Audit Reports
• Permanent, Comprehensive and Coherent
Account
• Provide Information
• Form and Quality a function of work quality
• Judgment of Authors capability
 Report Writing – A Process
• Report Writing an Art or a Science?
• Art – “Gifted” in writing. Effective sentence
structure / presentation
• Internal Audit Report is not a novel but
designed to create action
• It is a science that can be developed
and taught
• Develop Methodology /
Training for a good report writing

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 Audit Report - Stages
WHAT DOES THE USER
WANT TO KNOW?

FORM CONTENT
Skeleton Report (List List of items of
of Headings) information required

UNPUBLISHED PUBLISHED
INFORMATION INFORMATION
(To be generated) (Desk Research)
PRACTICAL WORK
Experiments , Interviews
Progress Meetings, Discussions

WORKING PAPERS
Extracts from published material, interview notes, Memoranda,
Experimental Results, Letters, Progress Reports, etc.

DRAFT REPORT

DISCUSSION OF DRAFT
REPORT

FINAL REPORT
 Possible Reasons for deficiencies in
Audit Quality
 Absence of a well structured Pre-audit discussions leading to
not properly capturing the key audit issues

 Not identifying ‘key’ issues which will have impact on Cost,

controls, Compliance etc.

 Absence of structured Audit Programmes

 Improper planning of assigned mandays.

 No / less co-operation from the auditees.

 Inadequate Audit skills

 Possible Reasons for deficiencies in
Audit Quality
 Inadequate time allocation by Audit Team Leaders
 Audit Teams (Divisional HQ / Plant) (Within the same CA Firm) do
not discuss issues & exchange notes.
 HO Auditor (where Unit auditors are different) should tie up all
unresolved issues pertaining to Units.
 Concentration on voluminous / trivial transactions or audit work.
 Not collecting adequate ‘data’ to bring home the point.
 Not discussing data with auditees which gets turned down by them
later after including in the report.
 Ineffective ‘communication’ of Audit Points
 Non-identification of value adding / non-value adding audit work.
 Audit Report - Planning
• Adequate time scheduling
• Skeleton Report
– Main Chapter Headings
– List of Subjects to be covered
• Assembling the Raw Material
• Drafting
• Timing
– Not a typing job
• Editorial Control
– Consistency
– Distribution
 Audit Report - Drafting
• Why am I writing?
– To inform, persuade, analyse, identify, recommend, secure
attention, gain acceptance
• Write to express not impress
• Understand and visualise the receiver
• Writing geared towards audience
– Educational levels and occupation, Group Loyalties, Beliefs
and attitudes, Friendly or hostile
• Deliver a message
 Audit Report - Organisation
• Identify the problem – analyse – offer solution
• Give information for decision making
• Avoid more information than what you need
to give
• Be logical
• Summarise
 Market the Report
• Aggressive marketing of the report is the most
productive part of the audit process
• Objective of the auditor to ensure action is taken
• Audit report – A business proposal
• Report to build the case and explain how and why
the recommendation should be accepted
• Methods to be used for recommendations
• Use methods of presentation other than the written
word

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 Market the Report (contd…)
• Pictures, charts, graphs making
physically attractive
• Post audit visits
• Explain and attempt to sell findings and
recommendations
• Effective use of exit conferences
• To gain acceptance of recommendations by
the auditee make some minor modification to
unacceptable recommendation, if necessary

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 Market the Report (contd…)
• Judicious use of copies of reports
• Report to senior people in the organization
• Conduct formal presentations
• Explaining and selling the recommendations.
• Offer limited resources to help implement the
recommendation.

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 Report Flow
• Draft Report to Operating Executives.
• Final Report to Departmental / Divisional Head
• Quarterly Summary Report to Unit / Functional Head with
Covering Letter
• Quarterly Summary Report to The Executive Director with all
Covering Letters
• Company wide Quarterly Summary Report to
The Chairman along with Executive Summary
• Company wide Quarterly Summary Report to
the Audit Committee Members of the
Board of Directors
• Annual Report to The Chairman

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 Essential Attributes of a Report
No. Report-Writing Attribute Recommended Solution

1. Objective of audit report is obvious to Develop procedures requiring the

the reader establishment of report objective(s)

2. After the audit no additional Develop procedures requiring the report

investigation is needed for report narrative to be written whenever a finding
writing occurs

3. Impact of finding and recommendation Quantify findings and recommendations

is stated

4. Recommendations are reasonable and Fully develop recommendations

supported

5. Findings and requirements are Market the report findings and

accepted and acted upon recommendations

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 Meeting Customer Expectations
• Waste reduction/avoidance
• Support on better utilisation of resources
• Corporate assurance on compliance with
systems/processes and regulatory requirements.
• Support on Risk Management efforts
• Support in Systems/process improvements
• In-house consultancy support
• Facilitator for problem solving
• Fraud detection/prevention

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 Effectiveness of Audit Report
• The desired results from the audit process are
marketed using the audit report
• If the management behaviour can be changed, the
report is successful
• If the findings and recommendations are rejected,
it’s a failure
• IA Reports form the basis for the measurement of
Internal Audit performance

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 Audit Report - Forms
• Detailed
– Title Sheet,
– Executive Summary,
– Main Report,
– Task Sheet,
– Information,
– Annexures
• One Page Report
Auditees’ Feedback Sheet

 Audit Objectives were clearly communicated to us.

 Audit took an acceptable amount of time. (In
mandays)
 The disruption of daily activities was minimised as
much as possible during the Audit.
 Operating conditions were adequately considered and
appreciated by the Audit.
 The Audit Team demonstrated proficiency in the
concerned area of Audit.
 Auditees’ Feedback Sheet...

 The Audit Team demonstrated courtesy, professionalism and

positive approach.
 Communication of Audit result and status to us during the
Audit was adequate.
 The Audit Teams' conclusions and opinions were logical and
accurately reported.
 Audit recommendations were constructive and actionable.
 Audit comments received from Auditees were correctly
reported.
 Overall audit provided "Value Addition" to our Unit.
Audit Committee Presentation
 STATUS OF THE AUDIT PROGRAM

• Audit Title
• Audit Number
• Scheduled & Completed
• Completed & Not Scheduled
• Carry-over from Prior Year
• Not Completed
• Audit Report Number and Dates
• Carry-over to Next Year
 Summary of Follow-up Reviews

• Number of Audits Completed

• Follow-up Performed, Action Plans Completed
• Follow-up Performed, Action Plans in Progress
• Follow-up Performed and Action Pending
• Total Follow-up Audits
• Description of Audits with Action Pending
• Unresolved or Open Items in Follow-up Audits*
*”The following are the significant unresolved or open items from
the follow-up of audits….”
 Report to Audit Committee

BUSINESS UNIT

1. SUBJECT Location [period]

Background GRAPH
CHART -

Rank: ( ) Rank: ( )
Observations Recommendations Actions Taken

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 Parameters For Ranking
• Value of Wastage / Savings Potential
• Severity of Regulatory Non-compliance
• Magnitude of exposure due to System /
Control Weakness
• Need for a Policy Decision
• Need to expedite action

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 Internal Control – An Evaluation

• Annual Plan as per COSO

• Deliberation on adequacy – Audit Committee
• Risk Materiality in Coverage
• Achievement of Coverage Continuous
Monitoring
• Control Implication Monitored in tables
 Internal Control – An Evaluation

A – No Control Weakness
B – Few Nominal Weakness
C – Merits attention not necessarily
material
D – Material Weakness
E – Imminent danger of failure of
objectives
Determinants of Rating Well Rating Rating Rating Material Persistent
Scope Controlled [A] Satisfactory Satisfactory Opportunities Or Pervasive
Control High Control Low for Material
[B] [C] Improvement Weakness [F]
[D]
Control
Environment
Risk Assessment

Control Activities

Information and
Communication

Monitoring
Standards for the Professional
Practice of Internal Auditing

THE INSTITUTE OF INTERNAL

AUDITORS
247 Maitland Avenue
Altamonte Springs, Florida 32701-4201

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The purpose of the Standards is to:

Establish the basis for the measurement of

internal audit performance

The Standards are part of the Professional

Practices Framework.

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2400 – Communicating Results

Internal auditors must communicate the engagement results promptly.

2410 – Criteria for Communicating

Communications must include the engagement’s objectives and scope as well

as applicable conclusions, recommendations, and action plans.

2410.A1 - The final communication of results must, where appropriate,

contain the internal auditor’s overall opinion.

2410.A2 - Engagement communications must acknowledge satisfactory

performance.

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2410.C1 – Communication of the progress and results of consulting
engagements will vary in form and content depending upon the nature of
the engagement and the needs of the client.

2420 – Quality of Communications

Communications must be accurate, objective, clear, concise, constructive,

complete, and timely.

2421 – Errors and Omissions

If a final communication contains a significant error or omission, the

Chief Audit Executive must communicate corrected information to all
individuals who received the original communication.

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 STATEMENTS ON INTERNAL AUDITING
STANDARDS (SIAS NO. 2) – Guidelines: 430
• A signed written report:
– Interim report requiring immediate attention
– Summary reports to higher level of management
– In case of report through electronic media one signed copy in file
• To discuss conclusions and recommendations at the draft audit stage for
clearing misunderstanding about the facts and figures, if any
• Reports should be objective, clear, concise, constructive and timely
• Reports to present the purpose, scope and results of the audit which may
include auditor’s opinion
• Reports should include recommendations for improvements and
acknowledge corrective action taken
• Auditee’s views about audit conclusions and recommendations may be
included in the report.

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 Report Writing Self Assessment
Checklist
Number Item Response

Yes No N/A Comments

1. Are the findings and recommendations
accepted and acted upon by the
auditee?
2. Is the audit staff trained on how to
write reports?
3. Are the audit objectives developed
prior to report writing and limited to
approx. three?
4. Do the report state actions expected to
be taken by the recipient?
5. Is the financial impact of findings
stated?
6. Is the cost of implementing
recommendations stated?
7. Do findings indicate the procedure,
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policies, business principles deviated?
Self Assessment Checklist (contd…)
Number Item Response
Yes No N/A Comments
8. Are reports presented in a format
which is visually pleasing? Are these
reports readable?
9. Are reports issued on a timely basis
(say within one week of the
conclusion of the fieldwork)?
10. Is the exit conference used to
promote acceptance of audit findings
and recommendations?
11. If the auditee does not accept the
findings and recommendations
initially, is a marketing program
established to sell the
recommendations and findings?
12. Does auditing ensure that timely
action is taken by the auditee? 35
 Concluding Tips
• So What? Copy should answer this.
• Read your draft after ending
• Put your copy away for 24 hrs. and read the
matter again before submission
• Never forget the main purpose of
communication
THANK YOU