Assurance

Professional Stage: Knowledge level

Internal Audit (Chapter- 9)
1. What is internal audit?
Internal audit is an appraisal or monitoring activity established within an entity as a service
which includes examining, evaluating and monitoring to management and directors on the
adequacy and effectiveness of components of the accounting and internal control systems.
2. How the internal audit function can assist the board?
The internal audit function can assist the board:

By acting as auditors for board reports not audited by external auditors;

By being the experts in auditing and accounting standards and assessing in
implementation of new standards;
By leasing with external auditors, particularly where external auditors can use internal
audits work and reduce the time and therefore cost of the external audit.

3. Distinguish between internal audit and external audit.

Reason
i) Internal audit is an activity designed to add value and to improve an
organizations operations;
ii) External audit is an exercise to enable auditors to express an opinion on the
financial statements.

Reporting to
i) Internal auditors report to the board of directors or the audit committee;
ii) External auditors report the shareholders on the truth and fairness of the
financial statements.

Relating to
i) Internal audits work relates to the operation of the organization;
ii) External audits work relates to the financial statements.

Relationship with the company

i) Internal auditors are very often employees of the organization;
ii) External auditors are independent of the company.

Appointment
i) Internal auditors are appointed by the management;
ii) External auditors are appointed by the shareholders.

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Internal Audit

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4. What are the key roles of internal audit in relation to risk management?
Internal audit or internal audit department has two key roles to play in relation to
organizational risk management:
Ensuring the companys overall risk management policy to ensure its effective
operation; i.e. Overall risk management policy; and
Ensuring that strategies implemented respect of business risks operate effectively;
i.e. implemented strategies.
5. What does internal audit do?
Internal audit successfully carries on the followings:
Internal audit has two key roles to play in relation to organizational risk
management:
i) Ensuring the companies risk management system operates effectively;
ii) Ensuring that implemented strategies in respect of business risks operate
effectively.
Internal auditors undertake operational audit;
Internal auditors also undertake special investigations; and
Internal auditors must be far from getting involved in operational decision making
matters.
6. Identify the key role of internal audit as part of internal control.
The key role of internal audit will be in monitoring the overall process and in providing
assurance that the systems designed by the departments meet objectives and operates
effectively.
7. What activities are usually involved in internal audit?
The following activities are usually involved in and internal audit:
Monitoring internal control;
Examining financial and operational information;
Review of the economy, efficiency and effectiveness of operations;
Review of compliance with laws, regulations and other external requirements;
Special investigations.
8. What is an operational audit? What are the aspects of an operational assignment?
Operational audit
Operational audits are the audits of the operational processes of the organization with the
objective of monitoring managements performance and ensuring company policy.
There are two aspects of an operational assignment:
Ensure policies are adequate; and
Ensure polices work effectively.
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What are the other functions of an internal audit in addition to regular function?
Internal audit may also carry out other functions for the directors in a company. They might
undertake special investigations in respect of a suspected fraud, or they might carry out
traditional audits as done by external auditors.

The End

Assurance Professional Stage Knowledge Level

Internal Audit

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