INTERNAL AUDIT ACT 3142: AUDIT II
INTERNAL AUDIT • Employed by companies • Perform: • Financial audit • Operational audit • Role – become more important • Increased size and complexity
INTERNAL AUDIT • More knowledge about their company than external auditor • Co.’s operation • Internal control • Knowledge – important for effective corporate governance
INTERNAL AUDIT • Bursa Malaysia requires listed companies to establish Internal Audit function
INTERNAL AUDIT • Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations.
INTERNAL AUDIT • IA helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
INTERNAL AUDIT • IIA – Definition • Internal auditors are expected to provide value to the organisation through improved operational effectiveness, in addition to traditional responsibilities such as reviewing the reliability and integrity of information, ensuring compliance with policies and regulations, and safeguarding assets.
INTERNAL AUDIT • Objective IA broader than EA • Scope and duties of IA – vary between companies • Extent • Area
INTERNAL AUDIT • IA report not standardise • Needs different • Reports are not relied by external users.
INTERNAL AUDIT • Professional guidance provided by: • Institute of Internal Auditors Malaysia (IIAM) • IIAM is a members of the worldwide body = The Institute of Internal Auditors, Inc, Florida, USA
INTERNAL AUDIT • IIA : > 100,000 members • 1200 countries • Provides: • Ethical and practice standards • Education • Encourage professionalism
INTERNAL AUDIT • IIAM: As at May 200 • 638 individual members • 105 corporate members
INTERNAL AUDIT • IIAM – Leader in training and development of internal auditor in Malaysia • Seminar • Workshops • Methods & techniques in internal auditing
INTERNAL AUDIT • IIA brought to Malaysia • Certified Internal Auditor (CIA) Examination
INTERNAL AUDIT • IIAM adopted the approved professional practice framework in 1999 • Code of ethics • IIA International Standards for the Professional Practice of Internal Auditing (the “Red Book”)
INTERNAL AUDIT • IIA Ethical Principles and Code of Ethics • Refer Handout
RELATIONSHIP OF IA & EA • Difference: • whom each party is responsible to • EA responsible to F/S users who rely on management • IA responsible to management
RELATIONSHIP OF IA & EA • Similarities • Both must be competent as auditors • Remain objective in performing their work and reporting their results • E.g. follow similar methodology, use audit risk model & materiality
RELATIONSHIP OF IA & EA • EA rely on IA through the use of the audit risk model. • Reduce CR = reduce substantive testing ….if IA effective
RELATIONSHIP OF IA & EA • ISA 610 Considering the work of Internal Auditing • Permits EA to use the IA for direct assistance on the audit • Complete audit in less time & for a lower fee.
RELATIONSHIP OF IA & EA • EA should assess the IA competence and objectivity
CORPORATE GOVERNANCE & THE ROLE OF INTERNAL AUD. • Many parties play sig. roles – effective CG • IA Key function