The Role of Audit and Assurance in Corporate and Enterprise Governance

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Chapter 16 The Role of Audit and Assurance in
Corporate and Enterprise Governance
Prepared by Barry J. Cooper and Shireenjit
Johl RMIT University
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The framework of enterprise governance
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FIGURE 16.2Typical risk managementsystem
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The COSO ERM framework consists of eight
interrelated components
FIGURE 16.3 Relationship of objectives
and components of ERM
COSO Enterprise Risk Management Framework, 2004,
available at ltwww.erm.coso.orggt
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5 key areas of audit in enterprise governance
Internal Auditing
Operational Auditing
Social Environmental Auditing
Forensic Auditing
Continuous Auditing
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Institute of Internal Auditors (IIA)

• IIA was incorporated in New York in 1941
• Now it is a world-wide organisation represented
  in more than 100 countries
• Aim is to represent, promote and develop the
  professional practice of internal auditing
• A national institute was formed in Australia in
  1986
• Objective is to assist members of an organisation
  in the effective discharge of their
  responsibilities
• Assists in risk management and promotion of
  effective governance and control, throughout the
  organisation, at a reasonable cost

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Organisational and functional differences between
internal and independent auditors
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(No Transcript)
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Forensic auditing

• Forensic auditing is called upon when there are
  large systems and corporate failures, or when
  fraud is suspected.
• One of the fastest growing areas in public
  accounting over past 10 years.

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What forensic auditors do?

• Investigative engagements
• Fraud investigations determining existence,
  nature and extent of fraud and funds tracing
• Business economic loss analysis
  contractdisputes, product liability claims etc.
• Litigation support
• Review of evidence to form assessment of case
  and identify areas of loss
• Obtain relevant evidence to support or refute
  legal claims.

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FIGURE 16.6 Outline of a parliamentary system
and the accountability process
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• The following are some of the benchmarks of which
  auditors and professional accountants must be
  aware
• ISO standards
• ISO 9000
• ISO 14000
• Total Quality Management (TQM)

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ISO Standards

• The International Organization for
  Standardization (ISO) is a network of the
  national standards institutes of 148 countries,
  with a central secretariat in Geneva,
  Switzerland, that coordinates the system
• The ISO acts as a bridging organisation in which
  a consensus can be reached on solutions that meet
  the requirements of business and society
• International standards provide a reference
  framework, or a common technological language,
  between suppliers and their customers
• Most of the ISO standards are highly specific to
  a particular product, material or process
• The ISO 9000 and ISO 14000 series are among the
  ISOs most widely known and successful standards

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• The ISO 9000 series is
• an international reference for quality
  requirements in business-to-business dealings
• concerned with quality management (what an
  organisation does to enhance customer
  satisfaction by meeting applicable regulatory
  requirements and continually improving its
  performance in this regard)
• is used for certification/registration and
  contractual purposes by organisations seeking
  recognition of their quality management system

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• The ISO 14000 series is
• concerned mainly with environmental management
  (what an organisation does to minimise harmful
  effects on the environment, caused by its
  activities and to continually improve its
  environmental performance)
• For an environmental management system (EMS) to
  be effective, the auditor determines whether an
  organisations EMS conforms to ISO
  specifications and requirements

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Environmental and sustainability assurance

• Environmental reporting is becoming increasingly
  prevalent, exemplified by the advent of triple
  bottom line and sustainability reporting.
• The IAASB has identified this as a major
  assurance service area in which it will be
  developing further guidance.

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Providing assurance on environmental and
sustainability reports

• In its 2002 survey of corporate sustainability
  reporting, KPMG observed a significant rise in
  the number of companies issuing such reports (45
  in 2002, compared with 35 in 1999).
• There was a large increase in the proportion of
  those reporting being independently assured (27
  in 2002 compared with 19 in 1999).
• The major accounting firms performed the majority
  of these verifications (65).

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Final Exam

• Date Time
• Tuesday 18th November
• Exam time 2-5pm
• Venue
• Vodafone Arena
• Coverage
• Chapters 7-16, lecture notes tutorials

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Final Exam Format
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Hand-in 3 due Sec on Mon 9am

• Question 1
• Section 297 of the Corporations Act 2001 requires
  the auditor to give an opinion as to whether the
  accounts are drawn up so as to give a true and
  fair view.
• Required
• Outline the technical and literal interpretations
  of the words true and fair.
• Question 2
• You are the audit manager of a new client.
  Management of the new client has prepared its
  accounts in accordance with GAAP but you believe
  that the overall view presented by this financial
  report is not true and fair.
• Required
• Outline in a report to your partner the approach
  that should be taken in these circumstances.