Internal and Governmental Financial Auditing and Operational Auditing

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Internal and Governmental Financial Auditing and Operational Auditing Chapter 26 ﻣﺤﻤﺪ ﺃﺒﻮ ﻃﻮﺍﺣﻴﻨﺔ ﺷﺎﻛﺮ

Internal and Governmental Financial Auditing and Operational Auditing Chapter 26 ﻣﺤﻤﺪ ﺃﺒﻮ ﻃﻮﺍﺣﻴﻨﺔ ﺷﺎﻛﺮ ﺍﻟﻐﻼﻳﻴﻨﻲ ﺃﺤﻤﺪ ﺇﺳﻠﻴﻢ © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 5 -5

Learning Objective 1 Explain the role of internal auditors in financial auditing. © 2012

Learning Objective 1 Explain the role of internal auditors in financial auditing. © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 2

Internal Auditing Internal auditing is an independent objective assurance and consulting activity designed to

Internal Auditing Internal auditing is an independent objective assurance and consulting activity designed to add value and improve an organization’s operations. ØRisk Management ØControls ØGovernance Processes © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 3

Internal Auditing Provide value through improved operational effectiveness while performing traditional responsibilities. Reviewing management

Internal Auditing Provide value through improved operational effectiveness while performing traditional responsibilities. Reviewing management information Safeguarding assets Ensuring compliance © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 4

Institute of Internal Auditors Ethical Principles Integrity Confidentiality Ethical Principles Competence Objectivity © 2012

Institute of Internal Auditors Ethical Principles Integrity Confidentiality Ethical Principles Competence Objectivity © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 5

Institute of Internal Auditors Rules of Conduct Integrity Confidentiality Rules of Conduct Competency Objectivity

Institute of Internal Auditors Rules of Conduct Integrity Confidentiality Rules of Conduct Competency Objectivity © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 6

Relationship of Internal and External Auditors The internal auditor is responsible to management The

Relationship of Internal and External Auditors The internal auditor is responsible to management The external auditor is responsible to financial statement users Both must be competent, objective, use a similar methodology, and consider risk and materiality © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 7

Learning Objective 2 Describe the auditing and reporting requirements under Government Auditing Standards and

Learning Objective 2 Describe the auditing and reporting requirements under Government Auditing Standards and the Single Audit Act © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 8

Governmental Financial Auditing The primary source of authoritative literature for performance of government audits

Governmental Financial Auditing The primary source of authoritative literature for performance of government audits is Government Auditing Standards, which is issued by the GAO. Because of the color of the cover, it is usually referred to as the “Yellow Book. ” © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 9

Governmental Financial Auditing The Yellow Book standards are often called generally accepted government auditing

Governmental Financial Auditing The Yellow Book standards are often called generally accepted government auditing standards (GAGAS). © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 10

Financial Audit and Reporting Requirements – Yellow Book Financial Auditing Standards of the Yellow

Financial Audit and Reporting Requirements – Yellow Book Financial Auditing Standards of the Yellow Book Consistent with GAAS/ Provide additional guidance… Materiality and significance Reporting © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Compliance auditing 26 - 11

Audit and Reporting – Single Audit Act and OMB Circular A-133 The threshold for

Audit and Reporting – Single Audit Act and OMB Circular A-133 The threshold for requiring a single audit is $500, 000. The Single Audit Act and OMB Circular A-133 contain requirements for the scope of the audit. Compliance with GAGAS Internal Control Risk © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Legal Compliance 26 - 12

Reporting Requirements An opinion on … Statements in accordance with GAAP Schedule of federal

Reporting Requirements An opinion on … Statements in accordance with GAAP Schedule of federal awards A report on … Internal controls Legal Compliance © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Findings and Questioned costs 26 - 13

Learning Objective 3 Distinguish operational auditing from financial auditing. © 2012 Prentice Hall Business

Learning Objective 3 Distinguish operational auditing from financial auditing. © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 14

Operational Auditing The purpose of operational auditing is to determine the effectiveness or efficiency

Operational Auditing The purpose of operational auditing is to determine the effectiveness or efficiency of any part of an organization Financial Auditing emphasizes whether historical information was correctly recorded while operational auditing emphasizes effectiveness and efficiency © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 15

Learning Objective 4 Provide an overview of operational audits. © 2012 Prentice Hall Business

Learning Objective 4 Provide an overview of operational audits. © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 16

Effectiveness Versus Efficiency Effectiveness refers to accomplishing objectives Efficiency is defined as reducing cost

Effectiveness Versus Efficiency Effectiveness refers to accomplishing objectives Efficiency is defined as reducing cost without reducing effectiveness © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 17

Effectiveness Versus Efficiency Inefficiency Example Acquisition of goods and services is too costly Bids

Effectiveness Versus Efficiency Inefficiency Example Acquisition of goods and services is too costly Bids for purchases of materials are not required Raw materials are not available when needed An assembly line was shut down for lack of materials A duplication of effort by employees exists Production and accounting keep identical records © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 18

Effectiveness Versus Efficiency Inefficiency Example Work is done that serves no purpose Vendors’ invoices

Effectiveness Versus Efficiency Inefficiency Example Work is done that serves no purpose Vendors’ invoices and receiving reports are filed without being used There are too many employees Office work could be done with one less assistant © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 19

Relationship Between Operational Auditing and Internal Controls ØReliability of financial reporting ØEfficiency and effectiveness

Relationship Between Operational Auditing and Internal Controls ØReliability of financial reporting ØEfficiency and effectiveness of operations ØCompliance with applicable laws and regulations © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 20

Types of Operational Audits Functional Organizational Special assignments © 2012 Prentice Hall Business Publishing,

Types of Operational Audits Functional Organizational Special assignments © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 21

Who Performs Operational Audits Internal auditors Government auditors CPA firms © 2012 Prentice Hall

Who Performs Operational Audits Internal auditors Government auditors CPA firms © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 22

Independence and Competence of Operational Auditors The two most important qualities for an operational

Independence and Competence of Operational Auditors The two most important qualities for an operational auditor Competence Independence © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 23

Learning Objective 5 Plan and perform an operational audit. © 2012 Prentice Hall Business

Learning Objective 5 Plan and perform an operational audit. © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 24

Specific Criteria More specific criteria are usually desirable before starting an operational audit Sources

Specific Criteria More specific criteria are usually desirable before starting an operational audit Sources of criteria include: ØHistorical performance ØBenchmarking ØEngineered standards ØDiscussion and agreement © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 26 - 25

Phases in Operational Auditing Planning ØStaffing ØScope ØControls Evidence gathering and evaluation ØEight types

Phases in Operational Auditing Planning ØStaffing ØScope ØControls Evidence gathering and evaluation ØEight types ØDocumentation © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Reporting and follow-up ØScope ØFindings ØRecommendations 26 - 26

End of Chapter 26 © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 5

End of Chapter 26 © 2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 5 -5

Internal and Governmental Financial Auditing and Operational AuditingInternal and Governmental Financial Auditing and Operational Auditing
Internal and Governmental Financial Auditing and Operational AuditingInternal and Governmental Financial Auditing and Operational Auditing
Internal and Governmental Financial Auditing and Operational AuditingInternal and Governmental Financial Auditing and Operational Auditing
Internal and Governmental Financial Auditing and Operational AuditingInternal and Governmental Financial Auditing and Operational Auditing
MODUL1 INTERNAL AUDITING THE NATURE OF INTERNAL AUDITINGMODUL1 INTERNAL AUDITING THE NATURE OF INTERNAL AUDITING
Value of Internal Auditing Internal Auditing Assurance InsightValue of Internal Auditing Internal Auditing Assurance Insight
Internal Auditing BY CDR ALOK MOHAN Internal auditingInternal Auditing BY CDR ALOK MOHAN Internal auditing
Internal Tides Internal Tides Internal Tides are InternalInternal Tides Internal Tides Internal Tides are Internal
esercizio Internal Internal Internal Disponibile nelle dispense Internalesercizio Internal Internal Internal Disponibile nelle dispense Internal
Accounting for State and Local Governmental Units GovernmentalAccounting for State and Local Governmental Units Governmental
Accounting for State and Local Governmental Units GovernmentalAccounting for State and Local Governmental Units Governmental
Governmental accounting THE THEORETICAL FRAMEWORK OF GOVERNMENTAL ACCOUNTINGGovernmental accounting THE THEORETICAL FRAMEWORK OF GOVERNMENTAL ACCOUNTING
AUDITING 10 1 Auditing AAAs Definition Auditing isAUDITING 10 1 Auditing AAAs Definition Auditing is
ETHICS IN AUDITING AUDITING FUNCTION Ethics in AuditingETHICS IN AUDITING AUDITING FUNCTION Ethics in Auditing
Chapter 1 Auditing and Internal Control IT AuditingChapter 1 Auditing and Internal Control IT Auditing
INTERNAL AUDITING Gruppo Compliance Auditing Patrizia Belluomo WorkshopINTERNAL AUDITING Gruppo Compliance Auditing Patrizia Belluomo Workshop
PRINCIPLES OF UNIT II AUDITING AUDITING INTERNAL CONTROLPRINCIPLES OF UNIT II AUDITING AUDITING INTERNAL CONTROL
AUDITING CHAPTER 19 Compliance Internal Auditing By DavidAUDITING CHAPTER 19 Compliance Internal Auditing By David
Section 6 Internal Operational and Compliance Auditing IntroductionSection 6 Internal Operational and Compliance Auditing Introduction
Operational amplifier Operational Amplifier An operational amplifier oftenOperational amplifier Operational Amplifier An operational amplifier often
Operational vs Informational System Operational System Operational systemsOperational vs Informational System Operational System Operational systems
Chapter 18 Internal Auditing and Outsourcing Define InternalChapter 18 Internal Auditing and Outsourcing Define Internal
Internal Audit Process Credit Union Internal Auditing fromInternal Audit Process Credit Union Internal Auditing from
MODUL2 INTERNAL AUDITING INTERNAL CONTROL MODEL Ch 2MODUL2 INTERNAL AUDITING INTERNAL CONTROL MODEL Ch 2