Signup to our free package and get access to updated study notes, practice questions and a mini mock.
Premium
This document, P3 – Risk Management CH7 – Internal Audit, covers various aspects of internal audit, including its role, purpose, and processes within organizations. Here are the key points:
Internal audit is an independent, objective assurance activity that enhances organizational operations by evaluating internal controls, fraud prevention, compliance, and overall governance.
It is distinct from risk management, which identifies and establishes risk controls, whereas internal audit monitors and assesses these controls.
Internal audit ensures efficiency, compliance, financial accuracy, and fraud detection.
It conducts compliance audits, fraud investigations, value-for-money audits, and operational reviews.
It assesses audit risks, analytical reviews, and prepares internal audit reports.
Factors affecting the need for an internal audit department include:
Scale and complexity of operations.
Organizational structure changes.
Problems in existing control systems.
Detection of unexplained or unacceptable events.
Internal audit follows international standards that emphasize independence, objectivity, and professional care.
Independence is safeguarded through reporting to senior directors or audit committees rather than executive management.
Some organizations outsource their internal audit functions, which has pros and cons related to cost savings, expertise, and independence concerns.
Compliance audit (ensuring adherence to laws and internal procedures).
Risk-based audit (focusing on high-risk areas).
Value-for-money audit (evaluating efficiency, economy, and effectiveness).
Environmental audit (assessing impact on sustainability and legal compliance).
Social audit (reviewing contributions to society, ethics, and equal opportunities).
Management audit (evaluating managerial performance).
Planning involves risk analysis, defining audit objectives, and assessing needed resources.
Audit testing includes compliance and substantive testing.
Audit sampling enables testing a subset of transactions for a broader evaluation.
Analytical review identifies financial trends and abnormalities.
External auditors may rely on internal audit findings to reduce audit fees.
Internal auditors assess fraud risks and provide recommendations for prevention.
Computer Assisted Audit Techniques (CAATs) help auditors analyze large datasets and test system controls.
Methods include testing live and dead data, and evaluating security vulnerabilities.
Internal audit reports include objectives, test results, recommendations, and accountability statements.
Overall, the document details the critical role of internal audit in strengthening risk management, operational efficiency, and governance practices.
Would you like a deeper breakdown of any specific section?
Sign up for our weekly newsletter to receive expert guidance, study resources, career tips, the latest discounts, and more.
