1. 25 - 1 Copyright  2003 Pearson Education Canada Inc. CHAPTER 25 Assurance Services: Internal Auditing and Comprehensive Auditing

2. 25 - 2 Copyright  2003 Pearson Education Canada Inc. What is internal auditing?

3. 25 - 3 Copyright  2003 Pearson Education Canada Inc. Many organiza- tions employ internal auditors to help the organ- ization achieve greater efficiency and effectiveness. What is internal auditing?

4. 25 - 4 Copyright  2003 Pearson Education Canada Inc. Many organiza- tions employ internal auditors to help the organ- ization achieve greater efficiency and effectiveness. What is internal auditing? In some corporations, internal auditors also determine whether the financial statements are fairly presented.

5. 25 - 5 Copyright  2003 Pearson Education Canada Inc. How do internal and external auditing differ?

6. 25 - 6 Copyright  2003 Pearson Education Canada Inc. Internal auditors usually focus on improving the efficiency and effectiveness of their employer. How do internal and external auditing differ?

7. 25 - 7 Copyright  2003 Pearson Education Canada Inc. Internal auditors usually focus on improving the efficiency and effectiveness of their employer. External auditors (public accounting firms) usually focus on the fairness of the financial statements of their clients. How do internal and external auditing differ?

8. 25 - 8 Copyright  2003 Pearson Education Canada Inc. There may be very little overlap between the responsibilities of internal and external auditors. internal auditors external auditors

9. 25 - 9 Copyright  2003 Pearson Education Canada Inc. internal auditors external auditors Are external auditors allowed to use internal auditors for direct assistance during an audit of financial statements?

10. 25 - 10 Copyright  2003 Pearson Education Canada Inc. Are external auditors allowed to use internal auditors for direct assistance during an audit of financial statements? YES, if external auditors are confident of internal auditors’: - competence - independence - objectivity

11. 25 - 11 Copyright  2003 Pearson Education Canada Inc. Why would an audit client be willing to allow external auditors to use internal auditors for direct assistance during an audit of financial statements?

12. 25 - 12 Copyright  2003 Pearson Education Canada Inc. Why would an audit client be willing to allow external auditors to use internal auditors for direct assistance during an audit of financial statements? lower audit fees

13. 25 - 13 Copyright  2003 Pearson Education Canada Inc. What is operational auditing?

14. 25 - 14 Copyright  2003 Pearson Education Canada Inc. What is operational auditing? The purpose of operational auditing is to enable an organization to achieve greater effectiveness and efficiency.

15. 25 - 15 Copyright  2003 Pearson Education Canada Inc. What are the differences between operational auditing and financial auditing?

16. 25 - 16 Copyright  2003 Pearson Education Canada Inc. What are the differences between operational auditing and financial auditing? - purpose of the audit operational auditing financial auditing purpose?

17. 25 - 17 Copyright  2003 Pearson Education Canada Inc. What are the differences between operational auditing and financial auditing? - purpose of the audit operational auditing financial auditing purpose: promotion of efficiency and effectiveness purpose: determination of statement fairness

18. 25 - 18 Copyright  2003 Pearson Education Canada Inc. What are the differences between operational auditing and financial auditing? - purpose of the audit - distribution of the reports operational auditing financial auditing distribution?

19. 25 - 19 Copyright  2003 Pearson Education Canada Inc. What are the differences between operational auditing and financial auditing? - purpose of the audit - distribution of the reports operational auditing financial auditing distributed to management distributed to statement users

20. 25 - 20 Copyright  2003 Pearson Education Canada Inc. What are the differences between operational auditing and financial auditing? - purpose of the audit - distribution of the reports - inclusion of nonfinancial areas Operational audits cover any aspect of efficiency and effectiveness in an organization.

21. 25 - 21 Copyright  2003 Pearson Education Canada Inc. What are the types of operational audits?

22. 25 - 22 Copyright  2003 Pearson Education Canada Inc. What are the types of operational audits? - a functional audit deals with one or more functions in an organization, e.g., cash receipts

23. 25 - 23 Copyright  2003 Pearson Education Canada Inc. What are the types of operational audits? - a functional audit deals with one or more functions in an organization - an organizational audit deals with an entire organization and how efficiently and effectively functions interact

24. 25 - 24 Copyright  2003 Pearson Education Canada Inc. What are the types of operational audits? - a functional audit deals with one or more functions in an organization - an organizational audit deals with an entire organization and how efficiently and effectively functions interact - special assignments arise at manage- ment’s request and can take a variety of forms

25. 25 - 25 Copyright  2003 Pearson Education Canada Inc. What are the most important qualities of an operational auditor?

26. 25 - 26 Copyright  2003 Pearson Education Canada Inc. What are the most important qualities of an operational auditor? - independence

27. 25 - 27 Copyright  2003 Pearson Education Canada Inc. What are the most important qualities of an operational auditor? - independence - competence

28. 25 - 28 Copyright  2003 Pearson Education Canada Inc. What are the phases of an operational audit?

29. 25 - 29 Copyright  2003 Pearson Education Canada Inc. What are the phases of an operational audit? - the planning phase is similar to that of a financial audit except for the extreme diversity among operational audits December ?

30. 25 - 30 Copyright  2003 Pearson Education Canada Inc. What are the phases of an operational audit? - the planning phase is similar to that of a financial audit except for the extreme diversity among operational audits - the evidence accumulation and evalua- tion phase is also similar to that of a financial audit

31. 25 - 31 Copyright  2003 Pearson Education Canada Inc. What are the phases of an operational audit? - the evidence accumulation and evaluation phase is also similar to that of a financial audit - the reporting and evaluation phase differs from that of a financial audit because the diversity of audits results in carefully-worded reports displaying a lack of standardized wording

32. 25 - 32 Copyright  2003 Pearson Education Canada Inc. Which organizations must follow the Public Sector Accounting and Auditing Board’s Recommendations?

33. 25 - 33 Copyright  2003 Pearson Education Canada Inc. Which organizations must follow the PSAAB Recommendations? Public Sector Entities: - federal, provincial, territorial and local governments - government organizations - school boards Not: - business-type organizations - government not-for-profit organizations

34. 25 - 34 Copyright  2003 Pearson Education Canada Inc. What is a Value-for- Money Audit?

35. 25 - 35 Copyright  2003 Pearson Education Canada Inc. What is a Value-for-Money Audit? General Standards 1. the VFM audit team should collectively possess the necessary knowledge and competence Differs from GAAS

36. 25 - 36 Copyright  2003 Pearson Education Canada Inc. What is a Value-for-Money Audit? General Standards 1. the VFM audit team should collectively possess the necessary knowledge and competence 2. Due care and an objective state of mind Similar to GAAS

37. 25 - 37 Copyright  2003 Pearson Education Canada Inc. What is a Value-for-Money Audit? Examination Standards 1. adequate planning and proper execution; proper supervision of team members 2. obtain sufficient appropriate audit evidence Similar to GAAS

38. 25 - 38 Copyright  2003 Pearson Education Canada Inc. What is a Value-for-Money Audit? Examination Standards 1. adequate planning and proper execution; proper supervision of team members 2. obtain sufficient appropriate audit evidence 3. criteria for evaluating matters subject to audit should be identified and their suitability assessed Similar to GAAS Differs from GAAS

39. 25 - 39 Copyright  2003 Pearson Education Canada Inc. What is a Value-for-Money Audit? Reporting Standards Report should: -describe the objectives and the scope of audit, including limitations -state examination was performed in accordance with recommended standards and included such tests and other procedures as considered necessary -identify the criteria and describe the findings -state the conclusions Differs from GAAS