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Internal and External Auditors

The document discusses internal and external auditors. It defines internal auditing and outlines the responsibilities of internal auditors such as offering insight, evaluating risk, and ensuring accuracy. It also discusses what happens during an internal audit, certifications, improving effectiveness, and the steps to perform an internal audit. The document defines internal controls and their types. It defines external auditors and discusses who hires them and the contents of an audit report. It also compares internal and external auditors.

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89 views19 pages

Internal and External Auditors

The document discusses internal and external auditors. It defines internal auditing and outlines the responsibilities of internal auditors such as offering insight, evaluating risk, and ensuring accuracy. It also discusses what happens during an internal audit, certifications, improving effectiveness, and the steps to perform an internal audit. The document defines internal controls and their types. It defines external auditors and discusses who hires them and the contents of an audit report. It also compares internal and external auditors.

Uploaded by

SHAMRAIZKHAN
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Lecture 15

Internal and External


Auditors.
Lecture overview

 Internal Auditors
 Internal Auditors Responsibilities
 What happens during an internal Audit?
 Certification
 How to improve effectiveness of internal Audit?
 Steps to perform internal Audit
 What is internal Control?
 Type of internal Control
 External Auditor
 Who hires external Auditors?
 Contents of Audit Report
 Difference between Internal and External Auditor

2
Internal Auditors

According to the Definition of Internal Auditing in The


IIA's International Professional Practices Framework
(IPPF),
“Internal auditing is an independent, objective
assurance and consulting activity designed to add
value and improve an organization's 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 processes”.
3
Internal Auditor (cont)

 Internal auditors can bring to  Fully empowered to


their operations by
identifying opportunities for provide a critical
enhancing efficiencies and check for
effectiveness.
management.
 To add value to the
organization’s governance,
risk management, and
internal control processes.

4
Internal Auditor Responsibilities

 Offer Insight and  Improve Operation


Advice  Promote Ethics
 Evaluate Risk  Review Process and
 Assess Control Procedures
 Ensure Accuracy  Monitor Compliance
 Investigate Fraud  Assure Safeguard
 Communicate Results

5
What Happens During An Internal
Audit?

 When an internal auditor comes into a company or


organization, they analyze documents regarding
the company’s risks, objectives and performance, as
well as observe how particular strategies are being
implemented.
 During the audit, skilled professionals who know
what to look for will observe, take notes, review
documents and interview employees. Auditors will
often test employees’ knowledge of company
objectives, safety standards and compliance rules.
6
Certifications

 Certified Internal
Auditor®

 Certification in Risk
Management
Assurance

7
How to improve effectiveness of
internal Audit

 Reporting Structure
 Build trust with other
members
 Clear Parameters
 Add Value

8
Steps to Perform an Internal Audit

 Create an Audit  Interview Users


Calendar  Document Results
 Alert Department  Report Findings
Related to Audit
Schedule
 Be Papered

9
What is Internal Control?

 An internal control is a  In other words,


procedure or policy put an internal
in place by
control is a process
management to
safeguard assets, put in place to
promote accountability, prevent employees
increase efficiency, and from stealing assets
stop fraudulent or committing fraud.
behavior.

10
Internal control (cont)

 Sarbanes Oxley  Executives found


Act requires guilty of not properly
management to managing the
design, implement, internal control
and personally structure of their
evaluate the companies can face
effectiveness of fines and even
internal controls prison time now
within the business.
11
Types of Internal control

 Preventive Controls: These controls are introduced in the firm to


stop errors and irregularities from taking place.

 Detective Controls: These controls are implemented to reveal


errors and irregularities, once they take place.

 Corrective Controls: These controls are designed to take


corrective action for removing errors and irregularities after they
are detected.

12
External Auditor

 External Auditors inspect clients'


accounting records and express an opinion
as to whether financial statements are
presented fairly in accordance with the
applicable accounting standards of the entity,
such as Generally Accepted Accounting
Principles (GAAP) or International Financial
Reporting Standards (IFRS).

13
Who Hires External Auditor

 External auditors are appointed by the


shareholders of a company, although this
usually comes through discussion with
directors. External auditors must be
appointed from a different
company independent of their own whilst
internal auditors are usually employees of
the organization.

14
Role of External Auditor

 External auditors serve a


 Monitoring role
 To ensure the quality of financial reporting
(Iatridis 2012),
 Reduce agency costs arising from managers’
opportunistic behavior,
 Lessen asymmetric information between
firms and stakeholders (Francis and Wang
15 2008).
Contents of Audit Report

 Title
 Addresses
 Introductory Paragraph
 Managements responsibility for financial Statements
 Auditors Responsibility
 Auditors Opinion
 Date and Place of Auditor Report
 Auditor Signature
 Reading and Inspections of Audit Report

16
BIG 4 Auditors

Big Four:
Price Waterhouse Coopers (A.F Ferguson & Co. )
Deloitte & Touche (M. Yousaf Adil Saleem & Co. )
Ernst & Young
KPMG(KPMG Taseer Hadi And Co )

17
Difference between Internal and
external Audit

 Objective
Objective
 The objective of an internal The objective of an external
audit is to educate audit is to give reliability and
management and employees credibility to the financial
about how they can improve reports that go to
business operations and shareholders.
efficiency Owed Responsibility
 Owed Responsibility External auditors have no
 An internal auditor is a trusted responsibility to the
consultant charged with organization other than
advising upper management determining the accuracy of
on how to best manage the annual financial statements.
18 company’s risks and goals.
Difference between Internal and
external Audit

 Reporting
Reporting
 An internal auditor reports to An external auditor
those within an organization reports to shareholders
who are outside the
governing structure of an
organization

19

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