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INTERNAL AUDIT

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

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INTERNAL AUDIT

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  1. INTERNAL AUDIT ACT 3142: AUDIT II

  2. INTERNAL AUDIT • Employed by companies • Perform: • Financial audit • Operational audit • Role – become more important • Increased size and complexity

  3. INTERNAL AUDIT • More knowledge about their company than external auditor • Co.’s operation • Internal control • Knowledge – important for effective corporate governance

  4. INTERNAL AUDIT • Bursa Malaysia requires listed companies to establish Internal Audit function

  5. INTERNAL AUDIT • Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations.

  6. 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.

  7. 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.

  8. INTERNAL AUDIT • Objective IA broader than EA • Scope and duties of IA – vary between companies • Extent • Area

  9. INTERNAL AUDIT • IA report not standardise • Needs different • Reports are not relied by external users.

  10. 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

  11. INTERNAL AUDIT • IIA : > 100,000 members • 1200 countries • Provides: • Ethical and practice standards • Education • Encourage professionalism

  12. INTERNAL AUDIT • IIAM: As at May 200 • 638 individual members • 105 corporate members

  13. INTERNAL AUDIT • IIAM – Leader in training and development of internal auditor in Malaysia • Seminar • Workshops • Methods & techniques in internal auditing

  14. INTERNAL AUDIT • IIA brought to Malaysia • Certified Internal Auditor (CIA) Examination

  15. 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”)

  16. INTERNAL AUDIT • IIA Ethical Principles and Code of Ethics • Refer Handout

  17. 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

  18. 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

  19. RELATIONSHIP OF IA & EA • EA rely on IA through the use of the audit risk model. • Reduce CR = reduce substantive testing ….if IA effective

  20. 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.

  21. RELATIONSHIP OF IA & EA • EA should assess the IA competence and objectivity

  22. CORPORATE GOVERNANCE & THE ROLE OF INTERNAL AUD. • Many parties play sig. roles – effective CG • IA Key function

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