Chapter 21 - Other Audits

1
Chapter 21 - Other Audits

• Internal Audits
• (More who does than type of audit)
• Operational Audits
• Compliance Audits

2
Internal Auditors

• Employee of the company or organization they
  audit, but some audit subcontractors.
• They often
• Perform operational, compliance internal
  control audits.
• Perform advisory or consulting services.
• Report to the audit committee of the board of
  directors and to the CEO/president.
• The Institute of Internal Auditors is the
  international organization.

3
Major Developments Affecting the Internal
Auditing Profession

• Need for additional assurance about financial
  information
• Demand by stock exchanges and SEC for management
  to assume more responsibility for financial
  information
• Need for assurance about the reliability of
  operational reports
• Demand for solutions to operational problems
• Passage of the Foreign Corrupt Practices Act of
  1977
• Report of the National Commission on Fraudulent
  Financial Reporting (Treadway Commission COSO)
• Report of the Blue Ribbon Committee on Audit
  Effectiveness (1998)
• Passage of the Sarbanes-Oxley Act of 2002

4
Internal Auditing

• Purpose of Internal Auditing
• An independent, objective assurance and
  consulting activity designed to add value and
  improve an organizations operations. It helps
  an organization accomplish its objectives by
  bringing a systematic, disciplined approach to
  evaluate and improve the effectiveness of risk
  management, control, and governance processes.
• Assist member of organization in performing their
  responsibilities by furnishing them analyses,
  appraisals, recommendations and counsel
• Part of organizations internal control - high
  level control that measures evaluates
  effectiveness of other controls

21-4
5
Professional Standards and Ethics for Internal
Auditors

• Somewhat similar to professional auditing
  standards for CPAs, but more general as internal
  audit varies widely and public does not rely on
  their work.
• One primary exception is Degree of Independence.
• Similar, but much less restrictive code of
  conduct or ethics - Primarily because of lessened
  independence and reliance by outsiders.

6
Operational Audits

• Make recommendations to improve
• Economy of Operations
• Efficiency of Operations
• Effectiveness of Operations
• So Impact the FUTURE

7
Attesting to Compliance with Laws and Regulations

• Applying Agreed-Upon Procedures to Specified
  Requirements
• Applying Agreed-Upon Procedures to the
  Effectiveness of Internal Controls
• Performing Examinations
• (Complete opinion on compliance)

8
Auditing and Reporting on Compliance with Laws
and Regulations

• GAAS (Financial Statement) Audit
• Procedures
• Tests of compliance with laws and regulations
  generally recognized as having a direct and
  material effect on the financial statements
• Report
• Opinion on the financial statements
• Audit under Governmental Audit Standards
• Procedures
• Basically same as GAAS added communication
  documentation
• Reports
• Opinion on financial statements
• Report(s) on compliance with laws/regulations
  on internal control

9
Auditing and Reporting on Compliance with Laws
and Regulations

• Single Audit Act Audit
• Procedures
• Same as GAAS, plus
• Tests of compliance with requirements applicable
  to major federal assistance programs.
• Tests of controls over major federal assistance
  programs.
• Reports
• Same as Government Auditing Standards, plus
• Report on schedule of federal award expenditures.
• Summary report of audit results relating to
  financial statements, internal control, and
  compliance.
• Report of findings and questioned costs.

10
Single Audit Act (1 of 2)

• Statutory requirement to test (i)controls over
  compliance and (ii)compliance with
  program/regulatory requirements.
• Applies to states local governments,
  universities and nonprofit organizations that
  expend 500,000 or more within a fiscal year in
  federal financial assistance funds.
• (changing to 750,000 per FY)
• Audits are more extensive than a F.S. audit.

21-10
11
Single Audit Act (2 of 2)

• Requirements include determining and reporting
  on
• Financial Statements are presented fairly in all
  material respects in accordance with generally
  accepted accounting principles.
• Schedule of Expenditures of Federal Awards is
  fairly presented in all material respects in
  relation to the financial statements taken as a
  whole.
• Entity complied with the provisions of laws,
  regulations, and contracts or grants that may
  have a direct and material effect on each major
  federal financial assistance program.

21-11