Internal Audit

1
Internal Audit

• An Overview

2
What is Internal Audit?

• Researching evaluating a companys financial
  statements.
• A control over company procedures mainly the
  accounting procedures of a company.
• Process applied to your individual company as
  opposed to auditing other external firms.
• Reviewing a companys financial statements in
  order to meet GAAP.
• An objective, non-biased arm of a companys
  management team that represents both
  shareholders interest, as well as, those members
  of the finance department.

3
What is Internal Audit?

• A review/analysis of a companys processes to
  ensure compliance and/or efficiency.
• To make sure that the company is following proper
  procedures as stated in company policies. Also,
  to make sure that internal controls are in place.
• Finding out problems with different parts of a
  business unit and formulating causes of these
  problems.
• Insuring that accounting controls are implemented
  and are reliable and prevent defalcation.

4
What is Internal Audit?

• Making improvements for the company.
• The testing of controls and functions of a
  business to see how efficiently it functions.
• To make improvement and to evolve.
• Ensuring that fraud is minimized, and most
  importantly that controls are in place.
• I have no idea.

5
Institute of Internal Auditors Definition

• Internal auditing is an independent, objective
  assurance and consulting activity designed to add
  value and improve an organizations operations.
  It helps an organization accomplish its
  objectives by bringing a systematic, disciplined
  approach to evaluate and improve the
  effectiveness of risk management, control, and
  governance process.

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Duties of Internal Audits

• Internal Audit is the independent appraisal of
  the various operations and systems of control
  within an organization to determine whether
• Management information is reliable
• Acceptable policies and procedures are followed
• Established standards are met
• Resources are safe guarded and used efficiently
  and economically
• The organizations objectives are being met

7
Internal Consultant

• Internal auditors can also be thought of as
  consultants
• Develop best practices
• Lead organization to improved operations and
  procedures
• Bring a bigger picture of the company to the
  table

8
Internal vs. External

• An employee
• Serves management and Board of Directors
• Reviews operations and controls for efficiency,
  economy, and effectiveness
• Reviews operations continually

• Independent contractor
• Serves third party in need of financial
  information
• Reviews operations and controls to determine
  scope of examination and reliability of financial
  data
• Reviews records supporting financial statements
  periodically

9
Types of Audit

• Financial
• Compliance
• Operational
• System
• Both internal and external auditors will do all
  types, but with different objectives.

10
Lawrence B. Sawyers, philosophy of Internal
Auditing

• To leave every place a little better than you
  found it.

11
IA Serves Management

• Monitor activities that upper management may not
  be able to
• Identify and minimize risks to the organization
  by recommending internal controls
• Validate reports to senior management to ensure
  their decisions are well informed
• Help in decision making process
• Advise senior management in technical areas
  beyond their knowledge
• Help manage by pointing out violations in
  procedures and management principles

12
Skills of an Outstanding Internal Auditor

• Excellent written and verbal communication
• Interviewing techniques
• Understanding of accounting information systems
• Ethical
• Political savvy
• Nosey disposition
• Common sense
• People oriented- establish positive relationships
• Negotiations

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10 Rules of IA

• Know the objectives
• What does management expect out of the operation?
• How does its objectives fit in with the overall
  organizations objectives?

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10 Rules of IA

• Know the controls
• Controls are a means to ensure that objectives
  are met.
• Are there controls?
• Are the existing controls effective?
• Know the measurement criteria
• Metrics that measure the success/failure of an
  operation
• Are there existing metrics or will you and the
  manager need to create them?
• Know the population
• Express an opinion only on what you have tested
• What are the boundaries of your information?

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10 Rules of IA

• Know the facts
• A fact is an actual occurrence, not an opinion or
  conclusion
• Dont believe what the first person tells you
• Know the causes
• Must know the root cause of the problem before a
  recommendation for correction or improvement can
  be formulated.
• Know the effect
• The effect is the actual or potential results of
  a defect
• How significant is the effect?

16
10 Rules of IA

• Know the people
• Build a good rapport with the auditees
• IA deals mostly with people and systems
• Learn the language and terrain
• Know when and how to communicate
• Open lines of communication between auditor and
  client (auditee) from beginning to end
• No surprises
• Know modern methods
• Keep up with changing technology
• On-going training