Elements of a Finding

1. Elements of a Finding The Institute of Internal Auditors – Puget Sound Chapter Comprehensive Entry Level Training for Auditors October 12-14, 2004 Seattle, Washington

2. Module Objective After participating in the learning activities related to elements of a finding, you will be able to: • Explain the role of findings in a report. • Identify and define the four elements of a finding . • Identify the elements of a finding in the rental car exercise.

3. Definition of a Finding A finding is the result of a logical pulling together of information (data gathering), processing the information (data analysis), arriving at conclusions on the basis of the sum of the information about an organization, program, activity, function, condition, or other matter which was analyzed or evaluated and considered to be of interest, concern, or of use to the client.

4. Function of a Finding A finding allows us to understand what occurred, how significant the occurrence was, and how we may be able to either guarantee or protect against its reoccurrence.

5. Importance of a Finding Findings are the core of a report. Without findings based upon evidence, conclusions and recommendations are not possible. The findings answer the audit objectives or audit questions.

6. Standards Related to Findings • IIA Practice Advisory 2410-1: Communication Criteria • GAS Reporting Standards for Financial Audits, Chapter 5 • GAS Reporting Standards for Performance Audits Chapter 8

7. 2410-1(7) Communication Criteria • Engagement observations and recommendations emerge by a process of comparing what should be with what is. • Whether or not there is a difference, the internal auditor has a foundation on which to build the report. • When conditions meet the criteria, acknowledgment in the engagement communications of satisfactory performance may be appropriate. • Observations and recommendations should be based on the following attributes: Condition, Criteria, Cause, and Effect.

8. Elements of a Finding • Criteria • Condition • Effect • Cause

9. Standards for Criteria IIA • The standards, measures, or expectations used in making an evaluation and/or verification. • What should be.

10. Standards for Criteria GAO – Financial Audits • An Audit report is improved when it provide information so that the report user will be able to determine what is the required or desired state or what is expected from the program or operation. • The criteria are easier to understand when stated fairly, explicitly, and completely, and the source of the criteria is identified in the audit report.

11. Standards for Criteria GAO – Performance Audits • Provides information so that the report user will be able to determine what is the required or desired state or what is expected from the program or operation. • The criteria are easier to understand when stated fairly, explicitly, and completely and when the source of the criteria is identified in the audit report.

12. Standards for Condition IIA • The factual evidence that the internal auditor found in the course of the examination. • What does exist.

13. Standards for Condition GAO – Financial Audits • The audit report is improved when it provides evidence of what the auditors found regarding the actual situation. • Reporting the scope or extent of the condition allows the report user to gain an accurate perspective.

14. Standards for Condition GAO – Performance Audits Condition provides evidence on what the auditors found regarding the actual situation. Reporting the scope or extent of the condition allows the report user to gain an accurate perspective.

15. Standards for Cause IIA • The reason for the difference between the expected and actual conditions. • Why the difference exists.

16. Standards for Cause GAO – Financial Audits • The audit report is improved when it provides persuasive evidence on the factor or factors responsible for the difference between condition and criteria. • In repotting the cause, auditors may consider whether the evidence provides a reasonable and convincing argument for why the stated cause is the key factor or factors contributing to the difference as opposed to other possible causes, such as poorly designed criteria or factors uncontrollable by program management. • The auditors also may consider whether the identified cause could serve as a basis for the recommendations.

17. Standards for Cause GAO – Performance Audits • Cause provides persuasive evidence on the factor or factors responsible for the difference between condition and criteria. • In reporting the cause, auditors may consider whether the evidence provides a reasonable and convincing argument for why the stated cause is the key factor or factors contributing to the difference as opposed to other possible causes such as poorly designed criteria or factors uncontrollable by program management. • The auditors also may consider whether the identified cause could serve as a basis for the recommendations.

18. Standards for Effect IIA • The risk or exposure the organization and/or others encounter because the condition is not consistent with the criteria (the impact of the difference). • In determining the degree of risk or exposure, internal auditors should consider the effect their engagement observations and recommendations may have on the organization’s operations and financial statements.

19. Standards for Effect GAO – Financial Audits • The audit report is improved when it provides persuasive evidence on the factor or factors responsible for the difference between condition and criteria. • In reporting the cause, auditors may consider whether the evidence provides a reasonable an convincing argument for why the stated cause is the key factor or factors contributing to the difference as opposed to other possible causes, such as poorly designed criteria or factors uncontrollable by program management. • The auditors also may consider whether the identified cause could serve as the basis for the recommendations.

20. Standards for Effect GAO – Performance Audits • Effect provides a clear, logical link to establish the impact of the difference between what the auditors found (condition) and what should be (criteria). • Effect is easier to understand when it is stated clearly, concisely, and if possible, in quantifiable terms. • The significant of the reported effect can be demonstrated through credible evidence.

21. Observations & Recommendations • (How to align criteria and condition)