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ITI Presentation

The document outlines the differences between internal and external audits, highlighting that internal auditors are employed by the organization and focus on operational reviews, while external auditors are independent and provide opinions on financial records. It describes the 'Three Lines of Defense' model in risk management and details the stages of an audit, including planning, fieldwork, and reporting. Additionally, it explains materiality concepts and the types of audit opinions that can be issued.

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Elvis Rumints
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24 views15 pages

ITI Presentation

The document outlines the differences between internal and external audits, highlighting that internal auditors are employed by the organization and focus on operational reviews, while external auditors are independent and provide opinions on financial records. It describes the 'Three Lines of Defense' model in risk management and details the stages of an audit, including planning, fieldwork, and reporting. Additionally, it explains materiality concepts and the types of audit opinions that can be issued.

Uploaded by

Elvis Rumints
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Presentation on Auditing 2025

Internal Audit vs External Audit

INTERNAL AUDIT EXTERNAL AUDIT

External auditors are employed by an


Internal auditors are employed by
accounting firm and are outside of the
the organisation.
organisation.
Every operation is subject to audit
or review by internal audit unit External audit is primarily focused on
within the organisation and control the financial records of the
weaknesses are highlighted along organisation in order to provide an
with recommendations to improve opinion to shareholders.
them. No opinion is provided.
Independence is compromised most
There is total independence
of the time
Internal Audit

 Reports to the Board Audit Committee on a functional basis


 Reports to the CEO or delegate on an administrative basis
 Reviews operations when risks associated with its operations are high
 These high risk areas are obtained from risk register
 Risk register is developed and maintained by risk management unit
within an organisation
 Risk management unit independently assesses the risks of each
operation and develop the risk
 This relationship is referred to as Three Lines of Defense
Three Lines of Defense
Explanation

• No, the second line of defense develops risk management policies and
procedures for the first line of defense. The second line of defense is
responsible for overseeing the first line of defense.
• First line of defense
• This line is responsible for managing risk in an organization's daily
operations. This includes identifying, assessing, and mitigating risks.
• Second line of defense
• This line is responsible for developing and implementing risk management
policies and procedures. They also oversee the first line of defense and
challenge practices to ensure risk is addressed effectively.
• Third line of defense
• This line is responsible for independently assessing and reporting on the work
of the first and second lines. This includes internal and external auditors.
External Audit

 Reported to the Board


 Users rely on it to make decisions
Engagement
Acceptance/Continuation
 Does the firm has resources, time and competence? (Capacity)
 Is the firm independent and free from Conflicts of Interests?
 Risks Associated with the client’s business, its integrity and
reputation

 This is done to reduce Audit Risk – the risk that the auditor may give
and incorrect opinion
Three Stages of Audit

 Audit Planning
 Fieldwork
 Reporting
Audit Planning

 Determine materiality (Overall Materiality, Performance


Materiality)
 Sample Account balances and transactions to be tested ( Use
Appropriate sampling techniques)
 Develop tailored audit programs for each account balances
such as inventory, accounts receivable, payroll, etc.
 Plan the Team
Audit Planning

Overall Materiality

 1 percent of total revenue


 2 to 5 percent of gross profit
 0.5% to 2% of total assets
 Etc

 It’s the benchmark upon which Performance Materiality is calculated


Performance Materiality

 The percentage is usually between 50% and 75%. The calculation is


not mechanical, as it also involves professional judgment.
 Gross Profit is K 1, 000, 000.00
 Benchmark is 5 percent of Gross Profits which is K 50, 000.00
 Performance Materiality @ 75% of Overall Materiality will be K 37,
500.00.
Audit Fieldwork

• Assess controls: Auditors evaluate the adequacy of internal controls


• Test transactions: Auditors check transactions, records, and
resources
• Perform other procedures: Auditors complete other procedures to
meet the audit's objectives
• The findings are recorded
 The evidence and source documents are collected
Reporting

 Write the audit report: Auditors document their findings


 Include the Opinion
 Management Letter Points
 Working Paper File
Opinions

 Unqualified Opinion – the audit tests have confirmed that there are
no material misstatements
 Qualified opinion: The auditor found material misstatements or
there was a limitation in scope.
 Adverse opinion: The auditor does not believe the financial
statements accurately portray the company's financial position or
results.
 Disclaimer of opinion: The auditor was unable to obtain sufficient
evidence to issue an opinion.
Ends

 Questions & Comments

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