INTERNAL AUDIT

PROCESS
By: Syafiqha Ihsani Hasania Basri BA Hons, MSc, ACCA
 INTERNAL AUDIT FUNCTION
Internal auditing is an independent, objective assurance, and consulting activity
designed to add value and improve organization’s operations (IIA, 2020).

According to IIA, Internal audit have two functions:

ASSURANCE CONSULTING
 FUNCTION OF INTERNAL AUDIT

ASSURANCE
Assurance is involved in the assessment of evidence to provide independent
opinion regarding the process in the organization (Moeller, 2017).
To assure the company are working well to achieve it’s objectives and follow
regulations.
• Examination and assessment of the company. Include examining financial,
performance, compliance and operation.
• Checking the internal control of the company.
• Assure that the systems and process in the company are working effectively and
efficient
 ASSURANCE ACTIVITY
• Examine the adequacy and effectiveness of operating system.
• Do employees working effectively.
• Checking their attendance records.
• Examine the adequacy and effectiveness of control
• Do they apply COSO Framework? Are they effective?
• Checking the reliability of financial statements.
• Match the transaction with the invoices.
• Verify the transaction records are accurate.
 ASSURANCE ACTIVITY
• Examine the compliance activity
• Assure the organization perform activity based on rules and regulation
applied.
• Assure they are paying tax.
• Examine the company’s performance
• Are the goal achieved?
• Are the organization structure effective?.
How do Internal Auditor conduct assurance?

• Interview
• Observation
• Inspection
FUNCTION OF INTERNAL AUDIT

CONSULTING
• Involve in giving advice and consultation regarding the
improvement of the systems and process if necessary.
• Consulting intend to add value and improve
organization’s governance, risk management, and
control.
 CONDUCTING INTERNAL AUDIT

• The steps and process of conducting internal audit

are managed in IPPIA
• What is IPPIA???
 CONDUCTING INTERNAL AUDIT

• IPPIA
• International standards for the Professional Practice of
Internal Auditing.
• The guides and standards of conducting internal audit can
be found in IPPIA Paragraph 2220 about engagement
scope.
CONDUCTING INTERNAL AUDIT

COMMUNICAT
OBJECTIVE PLANNING PERFORM
E
 OBJECTIVE
• Before we carry out the audit, we have to know the objective of
conducting internal audit
• What we need to achieve in conducting the audit.
• Provide assurance and consulting regarding company’s activity
• To Improve effectiveness and efficiency of company’s
operations.
 PLANNING
First Phase of the audit. Its the process where the internal auditor identify
and create planning to conduct audit
• Understand the Nature of The Business.
• Does the business involve in manufacturing sector? Or delivering services? Or health services?
• Determine the scope of audit.
• Identify the Auditee.
• Auditee is the people or departments that will be audited.
• What Items should be audited, for example: Accounts receivables transactions, Loans records, Salary records.
• When the audit will be perform.
• First Month of the year or Middle of the year.
• Internal audit never conducted at the end of the year, because external audit will be carry out at the end of the fiscal
year.
 PLANNING
• Identify the budget needed for the audit activity.
• Develop Audit program
• Create audit scheduled and procedures.
• Delegate task and responsibility to individuals in the audit team
• Conduct pre-Audit meeting.
• To inform regarding the audit program.
 AUDIT PLAN
AUDIT PLAN Mar-20
Week 1 Week 2 Week 3 Week 4 Week 5
Identify Area of Audit X
Notify Management X
Contact Department to conduct audit X
Visit the department X
Review documents and records X
Develop and Perform test of internal control X X
Perform other audit procedures as planned X
Complete the audit X
Create Audit report to show audit results X
Conduct audit meetings to report the activity X
Give recommendation for improvement X
Give audit report to the Board and
Management X
 Notification Engagement Letter
• Aims to notice the department of upcoming internal audit.
• This is to inform the auditee of 3 W’s:
• When the audit will be perform
• Who will carry out the audit
• Why the audit has been planned.
• This is created so the department can prepare the necessary
documents needed for the audit activity.
 Notification Engagement Letter
• Consist of:
• Addressee: The manager directly responsible for the unit being audited.
• Objectives and scope of audit: The areas that audit will cover, for example:
testing internal control in manufacturing operation.
• Expected start date and duration of audit.
• Persons responsible of the audit.
• Preparations needed: Any document or report needed to support the audit.
Example Of Notification Engagement Letter

The internal audit depart

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purchasing and accounts
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Our audit is schedule to
our internal auditors and
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report.
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vendors providing you w
we may need to interview
 PERFORM
The second phase of the audit. The process where internal
auditor conduct the audit. This phase also consider fieldwork.

• Collect Evidences and Review Documents.

• Evaluate the evidence and Verify the transactions
• Interview Workers in Departments.
• To ask questions regarding the activity.
• Visit Department and Conduct observation.
 Audit Evidence
Audit evidence is the information needed to perform the audit.
• Should be Relevant and Sufficient
• Relevant: Related to the audit objectives. For example: if the
audit team are examining the Accounts payable, then the evidence
would be purchase invoices, vendor of purchasing.
• Sufficient: Is it enough? Is it represent the transactions?
 COMMUNICATE
The third Phase of audit. This is where the internal auditor inform Board of
directors and Management about the audit findings.

• Conduct meetings with the audit department regarding the audit results.
• Produce reports which should be factual, appropriate, clear and concise.
• Give recommendation in the report for improvement
• Distribute the report to:
• Directors
• CEO/CFO
• Head of Departments.
 Internal Audit Report

• Internal Audit Report consist of:

• Identification of the findings
• The condition of the completed audit
• Auditor’s Comment
• Auditor’s recommendation
Example of Internal Audit Report
 Follow Up

• To ensure that department apply the given recommendation

for improvement.
• Or taking the corrective actions to fix the mistake and errors.
• By observing and Inspect the department
• Interview Workers and Managers
• Monitor the performance
 ACTIVITY
• You are an internal auditor, who wants to audit the internal control of Human
Resources Department, which include the Operational activity of the
employees.
• You’re going to conduct the audit on August 2020, and it will approximately
take 1 month to complete the audit process.
• There will be 2 internal auditor involve with 1 audit supervisor.
• You should notify the Human Resources Department.
• CREATE ENGAGEMENT NOTIFICATION LETTER.
 NEXT WEEK
• Types of Audit Evidence