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Management Audit Training Session: Basic Auditing Skills for Management Audit

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Management Audit Training Session: Basic Auditing Skills for Management Audit Resource Person: CA Kumud Tripathy FCA, ISA, MBA June 19, 2015 – PowerPoint PPT presentation

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Title: Management Audit Training Session: Basic Auditing Skills for Management Audit


1
Management Audit TrainingSession
Basic Auditing Skills for Management Audit
  • Resource Person
  • CA Kumud Tripathy
  • FCA, ISA, MBA
  • June 19, 2015

2
Subject Matters to be covered
  • A. Procedures for collecting necessary
    information for management audit
  • B. Problem Identification and Prioritization
    Skill
  • C. Investigation of Subject Matters and Analysis
    of Facts

3
Subject Matters to be covered Contd.
  • D. Factors to be considered while giving
    suggestion/recommendation after management audit
  • E. Monitoring and evaluation of audit process
  • F. Professional competence/quality of
    management auditor and code of ethics

4
Subject Matters to be covered Contd.
  • G. Necessary skills of management auditor with
    regards to communication, relationship,
    coordination and networking

5
Background
  • What is Audit?
  • In general, auditing is defined as a systematic
    and independent examination of data, statements,
    records, operations and performances (financial
    or otherwise) of an enterprise for a stated
    purpose.

6
What is Audit? Contd.
  • In any auditing situation, the auditor perceives
    and recognizes the propositions before him for
    examination, collects evidence, evaluates the
    same and on this basis formulates his judgment
    which is communicated through his audit report.

7
What is Audit? Contd.
  • Thus, auditing is a specialized function having
    complex legal, economic and ethical implications

8
What is Management Audit in our perspective?
  • Management Audit Guidelines 2067
  • -Jojyfkg k/LIf0f lgblzsf _at_)_ defines
    management audit as

9
What is Management Audit in our
perspective? Contd.
  • Jojyfkg k/LIf0f eGgfn nfsjf cfofusf
    sfoIfq leqsf ljifox? Affxssf fdfGo kzfg
    dqfno jf f af6 tflsPsf lgsfon gkfn /sf/sf
    laleGg lgsfox?df sfo/t lghfdlt sdrf/Ln krlnt
    sfg"g tyf kzfsLo lgod / sfoljlwx? Kffngf u/
    gu/sf DaGwdf 'kl/jIf0f, cg'udg / d"Nofsg
    u/L lgbzg dt lbg sfonfO hgfpF5 .

10
Audit Procedures
  • A. Procedures for collecting necessary
    information for management audit

11
Audit Procedures Contd.
  • Why Management Audit?
  • Scope of Management Audit?
  • (Details are given in Chapter 2 of Management
    Audit Guidelines 2067)

12
Audit Procedures Contd.
  • Objectives of Management Audit
  • Consistency in managerial activities of different
    entities of Nepal Government
  • Examine the activities of civil servants of Nepal
    Government to find out whether they are in
    compliance with the prevailing laws and

13
Audit Procedures Contd.
  • regulations and recommend for the improvement of
    short comings, if any
  • Determine the strength and weakness of the
    organization and recommend for further
    improvements of the strength and remedial
    measures for the weaknesses

14
Audit Procedures Contd.
  • Help to increase efficiency and effectiveness in
    the organization by optimal utilization of
    available resources
  • Help to develop sense of accountability by
    controlling the probable shortcoming and
    mismanagement

15
Audit Procedures Contd.
  • Evaluate the working capacity of all the levels
    of management of the organization
  • Identify the problems in the implementation level
    of the organization and recommend the appropriate
    suggestions

16
Audit Procedures Contd.
  • Improve good governance by helping to maintain
    law and order in work performance

17
Audit Procedures Contd.
  • Scope of Work
  • Organizational Policy and Behavior
  • Organization Structure
  • Work Process and Office Lay-out
  • Staff Management and Record
  • Financial Administration and Store Management

18
Audit Procedures Contd.
  • Delivery of Services and Transparency
  • Use of Information Technology
  • Management of Employees Complaint
  • Others

19
Audit Procedures Contd.
  • Procedures to be used for collecting
    information
  • Observation, Discussion, Interview,
    Questionnaire, Study of documents or evidence,
    Review and study of earlier reports, Other
    procedures deemed necessary by the audit team

20
Audit Procedures Contd.
  • Objectives and General Principles Governing an
    Audit (NSA 200)
  • Ethical Requirement for Audit
  • Conduct of audit in accordance with regulatory
    requirements

21
Audit Procedures Contd.
  • Audit Risk and Materiality The auditor should
    plan and perform the audit to reduce audit risk
    to an acceptable low level

22
Audit Procedures Contd.
  • Audit Documentation (NSA 230)
  • The auditor should prepare audit documentation
    that provides
  • Sufficient and appropriate record of basis of his
    report

23
Audit Procedures Contd.
  • The evidence that the audit was conducted in
    accordance with the applicable legal and
    regulatory requirements
  • The nature, timing and extent of audit procedures
    performed to comply with applicable legal and
    regulatory requirements

24
Audit Procedures Contd.
  • The result of the audit procedures and the audit
    evidence obtained
  • Significant matters arising during the audit and
    the conclusions reached

25
Audit Procedures Contd.
  • Responsibility to Consider Fraud
  • (NSA 240)
  •  In planning and performing the audit to reduce
    audit risk to an acceptable low level, the
    auditor should consider the risk of material
    misinformation due to fraud or error

26
Audit Procedures Contd.
  • The primary responsibility for the prevention and
    detection of fraud rests with both those charged
    with governance and with the management
  • Owing to the inherent limitations of an audit,
    there is an unavoidable risk that some material
    misinformation will not be detected, even though
    the audit is properly planned and performed

27
Audit Procedures Contd.
  • B. Problem Identification and Prioritization
    Skill

28
Audit Procedures Contd.
  • The management auditor should compare the
    performance requirement of the organization being
    audited and the actual performance of the
    organization
  • The comparison shall be done on the basis of
    audit evidence gathered

29
Audit Procedures Contd.
  • The problem shall be identified while comparing
    the required performance with the actual
    performance
  • The variances should be analyzed properly for
    prioritization for investigation and presentation
    in the report

30
Audit Procedures Contd.
  • C. Investigation of Subject Matters and Analysis
    of Facts

31
Audit Procedures Contd.
  • Consideration of Laws and Regulations in an
    Audit (NSA 250)
  • The auditor should design and perform the audit
    procedures such that the non-compliance with
    relevant laws and regulations are identified

32
Audit Procedures Contd.
  • The responsibility for the prevention and
    detection of non-compliance with laws and
    regulations primarily rests with the management
  • However, in order to plan the audit, the auditor
    should obtain general understanding of legal and
    regulatory framework applicable to the
    organization being audited

33
Audit Procedures Contd.
  • When the auditor believes that there may be
    non-compliance, he should document the findings
    and discuss with the management and also inform
    the matter to those charged with governance

34
Audit Procedures Contd.
  • Understanding the Entity and its Environment and
    Assessing the Risks of Material Misstatement (NSA
    315)

35
Audit Procedures Contd.
  • The auditor should obtain an understanding of the
    organization and its environment, including its
    internal control, sufficient to identify and
    assess the risks of material misstatement of the
    information

36
Audit Procedures Contd.
  • The auditor should perform the following risk
    assessment procedures to obtain an understanding
    of the organization and its environment,
    including internal control
  • Inquiries of management and others within the
    organization Analytical procedures Observation
    and inspection

37
Audit Procedures Contd.
  • After understanding the organization, its
    environment and audit risk, appropriate audit
    procedures should be applied

38
Audit Procedures Contd.
  • Audit Materiality (NSA 320)
  • The auditor should consider materiality and its
    relationship with audit risk when conducting an
    audit
  • There is an inverse relationship between
    materiality and the level of audit risk, i.e. the
    higher the materiality level, the lower the audit
    risk and vice versa

39
Audit Procedures Contd.
  • Auditors Procedures in Response to Assessed
    Risks (NSA 330)
  • The auditor should determine overall responses to
    address the assessed risk and should design and
    perform further audit procedures to respond to
    assessed risks

40
Audit Procedures Contd.
  • Audit Evidence (NSA 500)
  • The auditor should obtain sufficient appropriate
    audit evidence to be able to draw reasonable
    conclusions for the audit report
  • Sufficiency is the measure of the quantity of
    audit evidence where as appropriateness is the
    measure of the quality of the audit evidence

41
Audit Procedures Contd.
  • Audit evidence is more reliable when it is
    obtained from independent sources outside the
    organization
  • Audit evidence that is generated internally is
    more reliable when the related controls imposed
    by the organization are effective

42
Audit Procedures Contd.
  • Audit evidence provided by original documents is
    more reliable than the audit evidence provided by
    photocopies or facsimiles

43
Audit Procedures Contd.
  • Audit procedures for obtaining audit evidence may
    be
  • Inspection of records or documents
  • Inspection of tangible assets Observation
  • Inquiry
  • Confirmation from third parties

44
Audit Procedures Contd.
  • Recalculation (checking of mathematical
    accuracy)
  • Re-performance (independent execution of
    procedure- e.g. aging of receivables)
  • Analytical procedures

45
Audit Procedures Contd.
  • External Confirmations (NSA 505)
  • The auditor should determine whether the use of
    external confirmations is necessary to obtain
    sufficient appropriate audit evidence
  • External confirmations are frequently used in
    relation to accounts balances and their
    components but need not be restricted to these
    items only

46
Audit Procedures Contd.
  • Confirmation requests ordinarily include
    managements authorization to the respondent to
    disclose the information to the auditor
  • The auditor may use positive or negative external
    confirmation requests or combination of both.
    Positive external confirmation requests are more
    reliable audit evidence

47
Audit Procedures Contd.
  • When performing confirmation procedure, the
    auditor should maintain control over the process
    of selecting those to whom a request will be
    sent, the preparation and sending of confirmation
    requests and the responses to those requests

48
Audit Procedures Contd.
  • The auditor should consider whether there is any
    indication that external confirmations received
    may not be reliable

49
Audit Procedures Contd.
  • Analytical Procedures (NSA 520)
  • The auditor should apply analytical procedures as
    risk assessment procedures to obtain an
    understanding of the organization and its
    environment and in the overall review at the end
    of the audit

50
Audit Procedures Contd.
  • Analytical procedures means evaluation of
    financial information made by a study of
    plausible relationship among both financial and
    non-financial data

51
Audit Procedures Contd.
  • Audit Sampling and Other Means of Testing (NSA
    530)
  • The auditor should assess the audit risk through
    tests of control and substantive procedure
  • In obtaining audit evidence, the auditor should
    use professional judgment to assess audit risk

52
Audit Procedures Contd.
  • Sampling risk and non-sampling risk can affect
    the components of the audit risk
  • The auditor may decide to apply audit sampling to
    a class of transactions or activities

53
Audit Procedures Contd.
  • In determining the sample size, the auditor
    should consider whether sampling risk is reduced
    to an acceptable low level
  • The auditor should select items for the sample
    with the expectation that all sampling units in
    the population have a chance of selection

54
Audit Procedures Contd.
  • Audit of Accounting Estimates (NSA 540)
  • The auditor should obtain sufficient appropriate
    audit evidence regarding accounting estimates

55
Audit Procedures Contd.
  • The auditor should design and perform further
    audit procedures to obtain sufficient appropriate
    audit evidence as to whether the organizations
    accounting estimates are reasonable in the
    circumstances

56
Audit Procedures Contd.
  • The auditor should review and test the process
    used by the management to develop the estimate
  • The auditor should use an independent estimate
    for comparison with that prepared by the
    management

57
Audit Procedures Contd.
  • The auditor should review subsequent events which
    provide audit evidence of the reasonableness of
    the estimates made
  • The auditor should evaluate whether the data on
    which the estimate is based is accurate, complete
    and relevant

58
Audit Procedures Contd.
  • The auditor should evaluate whether the
    organization has an appropriate base for the
    principal assumptions used in the accounting
    estimate
  • The auditor should compare previous estimates
    with the actual results to assess the reliability
    of current estimates

59
Audit Procedures Contd.
  • Related Parties (NSA 550)
  • The auditor should perform audit procedures
    designed to obtain sufficient appropriate audit
    evidence regarding the identification and
    disclosure by management of related parties and
    the effect of related party transactions

60
Audit Procedures Contd.
  • An audit cannot be expected to detect all related
    party transactions
  • Management is responsible for the identification
    and disclosure of related parties and
    transactions with such parties

61
Audit Procedures Contd.
  • The auditor should review the information
    provided by the management with regards to
    related party and transaction with them and try
    to ensure completeness of such disclosure

62
Audit Procedures Contd.
  • While examining the identified related party
    transactions, the auditor should obtain
    sufficient appropriate audit evidence as to
    whether these transactions have been properly
    recorded and disclosed

63
Audit Procedures Contd.
  • The auditor should obtain written representation
    from the management regarding completeness of
    information about related parties and the
    adequacy of related party disclosure

64
Audit Procedures Contd.
  • Management Representations (NSA 580)
  • The auditor should obtain appropriate
    representations from the management acknowledging
    its responsibility for the financial information
    and other relevant regulatory matters

65
Audit Procedures Contd.
  • Management Representation may be considered as
    audit evidence when other sufficient appropriate
    audit evidence cannot reasonably be expected to
    exist

66
Audit Procedures Contd.
  • If management representation seems to be
    contradictory with other audit evidence, the
    auditor should investigate the circumstances and
    reconsider the reliability of other
    representations made by the management

67
Audit Procedures Contd.
  • If the management refuses to provide a
    representation that the auditor considers
    necessary, this constitutes a scope limitation
    and the auditor should prepare its report
    accordingly

68
Audit Procedures Contd.
  • Considering the Work of Internal Audit (NSA 610)
  • The external auditor (Management Auditor in our
    case) should consider the activities of internal
    auditing and their effect, if any, on external
    audit procedure

69
Audit Procedures Contd.
  • The external auditor should perform an assessment
    of the internal audit function for assessing its
    audit risk
  • For the assessment of internal audit function,
    the important criteria are Organizational
    Status, Scope of Function, Technical Competence
    and Due Professional Care

70
Audit Procedures Contd.
  • Using the Work of an Expert (NSA 620)
  • When using the work performed by an expert, the
    auditor should obtain sufficient appropriate
    audit evidence that such work is adequate for the
    purposes of the audit

71
Audit Procedures Contd..
  • An expert may be contracted by the organization
    may be contracted by the auditor may by employed
    by the organization or employed by the auditor
    (applicable in case of independent management
    auditor)

72
Audit Procedures Contd.
  • When planning to use the work of an expert, the
    auditor should evaluate the professional
    competence of the expert
  • The auditor should obtain sufficient appropriate
    audit evidence that the scope of the experts
    work is adequate for the purposes of the audit

73
Audit Procedures Contd.
  • D. Factors to be considered while giving
    suggestion / recommendation after management
    audit

74
Audit Procedures Contd.
  • Communication of Audit Matters with those
    charged with Governance
  • (NSA 260)
  • The auditor should communicate audit matters of
    governance interest found during the audit with
    those charged with governance

75
Audit Procedures Contd.
  • The auditor should determine the appropriate
    person for communicating relevant audit matters
  • The auditor should communicate audit matters of
    governance interest on a timely basis. The
    matters may be communicated orally or in writing

76
Audit Procedures Contd.
  • The legislation or the regulation of the country
    may impose obligation on the auditor to make
    communications on governance related matters

77
Audit Procedures Contd.
  • Subsequent Events (NSA 560)
  • The auditor should consider the effect of
    subsequent events on the financial information
    and the audit report

78
Audit Procedures Contd.
  • When the auditor becomes aware of events which
    materially affect the financial information, the
    auditor should consider whether such events are
    properly accounted for and adequately disclosed

79
Audit Procedures Contd.
  • E. Monitoring and evaluation of audit process

80
Audit Procedures Contd.
  • Quality Control for Audits (NSA 220)
  • The engagement team should implement quality
    control procedures that are applicable to the
    individual audit
  • The management audit team leader should be
    responsible for the quality of audit

81
Audit Procedures Contd.
  • The management audit team leader should ensure
    that the appropriate audit procedures are in
    place throughout the audit process
  • The team leader should consider whether the
    members of the audit team have complied with
    ethical requirements

82
Audit Procedures Contd.
  • F. Professional competence/quality of
    management auditor and code of ethics

83
Audit Procedures Contd.
  • The management audit team should ensure that all
    the members of the audit team comply with
    professional standards and regulatory and legal
    requirements

84
Audit Procedures Contd.
  • Capabilities and competence are developed
    through Continuing professional development,
    including training Professional education Work
    experience Coaching by more experienced staff

85
Audit Procedures Contd.
  • The quality control policies and procedures with
    regards to management audit developed by the
    ministry of general administrations, if any,
    should be communicated to the audit team

86
Audit Procedures Contd.
  • All the members of the management audit team
    should comply with the relevant ethical
    requirements that are expected from the
    government employees

87
Audit Procedures Contd.
  • ICAN Code of Ethics establishes the fundamental
    principles of professional ethics, which include
    Integrity Objectivity Professional competence
    and due care Confidentiality Professional
    behavior Independence

88
Audit Procedures Contd.
  • G. Necessary skills of management auditor with
    regards to communication, relationship,
    coordination and networking

89
Audit Procedures Contd.
  • On top of auditing skills, all the members of the
    management audit team are expected to possess
    good skill with regards to communication,
    relationship, coordination and networking with
    the concerned staff of the organization being
    audited

90
Audit Procedures Contd.
  • Such skills can be acquired by participating in
    appropriate technical, professional and skill
    development training programs conducted in house
    as well as outside the organization with the help
    of professional resource persons

91
Audit Procedures Contd.
  • The management audit team should give prior
    written information to the organization being
    audited, except in case of surprise audit, so
    that the management audit could be carried out
    smoothly and completed within stipulated time
    frame

92
Audit Procedures Contd.
  • The information should include time required for
    audit subject matter of the management audit
    audit procedures name of audit team members
    support expected from the organization being
    audited

93
  • Any Question?

94
  • Thank You
  • For your Patience
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