Riyashee-Process of Internal Audit

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Procedure of Internal Audit

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Internal Audit Process

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INTERNAL AUDIT PROCESS INTERNAL CONTROL REVIEW AUDIT PROGRAM WORKING PAPERS AUDIT REPORT AUDIT FOLLOW UP PLANNING

Steps of internal audit process :

Steps of internal audit process ANNOUNCEMENT LETTER INITIAL MEETING PRELIMINARY SURVEY 1 st STEP PLANNING

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During the planning portion of the audit, the auditor notifies the client of the audit, discusses the scope and objectives of the examination in a formal meeting with organization management, gathers information on important processes, evaluates existing controls, and plans the remaining audit steps. Planning

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Announcement Letter: The client is informed of the audit through an announcement or engagement letter from the Internal Audit Director. This letter communicates the scope and objectives of the audit, the auditors assigned to the project and other relevant information. Initial Meeting : During this opening conference meeting, the client describes the unit or system to be reviewed, the organization, available resources (personnel, facilities, equipment, funds), and other relevant information. It is important that the client identify issues or areas of special concern that should be addressed.

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Preliminary Survey: During this stage, the auditor: reviews prior audit reports and other existing information of the client, interviews key employees on how processes work, assesses whether the processes are functioning as described (while this does not involve extensive meetings with client) identifies any additional processes that present risks. The auditor then ranks the risks for audit purposes. The approach, selection of, and degree of testing is then based on these rankings.

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2nd STEP : INTERNAL CONTROL REVIEW The auditor will review the unit's internal control structure, a process which is usually time-consuming. In doing this, the auditor uses a variety of tools and techniques to gather and analyze information about the operation. These tools and techniques can not be defined specifically as they change according to the scope of audit and requirement of client. The review of internal controls helps the auditor determine the areas of highest risk and design tests to be performed in the fieldwork section.

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Fieldwork Transaction Testing AUDIT PROGRAM Advice & Informal Communication Audit Summary 3rd STEP : AUDIT PROGRAM

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Field Work During this stage, based on the rankings and findings from the preliminary survey, the auditor will select the transactions to be tested for accuracy and completeness. This can include anything from review of deposit reconciliations to testing supporting detail for internal transfers or rate calculations. Testing also involves verification of the accuracy of assertions made during the preliminary survey to source documentation. An organization with good internal controls usually requires a limited amount of testing, but it may be increased if problems are discovered. Transactions chosen to be tested are determined using sampling methods tailored to fit the process under review.

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As the fieldwork progresses, the auditor discusses any significant findings with the client. Hopefully, the client can offer insights and work with the auditor to determine the best method of resolving the finding. Usually these communications are oral. However, in more complex situations, memos and/or e-mails are written in order to ensure full understanding by the client and the auditor. Informal communication

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Upon completion of the fieldwork, the auditor summarizes the audit findings, conclusions, and recommendations necessary for the audit report discussion draft. Audit Summary

4th STEP : Working Papers :

4th STEP : Working Papers Purchase Records Expenses records Sales Records Human Resources Records Statutory Payments Records Stock audit Records Working Papers

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Working Papers Audit working papers are the documents which record all audit evidence obtained during financial statements auditing, internal management auditing, information systems auditing, and investigations. Audit working papers are used to support the audit work done in order to provide assurance that the audit was performed in accordance with the relevant auditing standards. Audit working papers are the property of the auditor. In order to keep professional ethic, it cannot discover to third party without consent of the client unless limited specified situations mentioned in ISA 230 Documentation and required by law, the examples are court order, for public interest and so on.

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Proper features of working papers Reviewed by auditors with supervisors noted. Signed, dated and approved by relevant level of audit staff with sufficient cross reference. They are evidence of effective audit planning, work done, sufficient and quality evidence.

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Audit Report Discussion draft Formal Draft Client Response Final Report 5th STEP : AUDIT REPORT

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Audit Report A) Discussion Draft At the conclusion of fieldwork, the auditor drafts the report. Audit management thoroughly reviews the audit working papers and the discussion draft before it is presented to the client for comment. This discussion draft is prepared for the unit's operating management and is submitted for the client's review before the exit conference. Exit Conference When audit management has approved the discussion draft, Internal Audit meets with the unit's management team to discuss the findings, recommendations, and text of the draft. At this meeting, the client comments on the draft and the group work to reach an agreement on the audit findings.

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Audit Report B) Formal Draft The auditor then prepares a formal draft, taking into account any revisions resulting from the exit conference and other discussions. When the changes have been reviewed by audit management and the client, the final report is issued. C)  Client Response The client has the opportunity to respond to the audit findings prior to issuance of the final report which can be included or attached to our final report. However, if the client decides to respond after we issue the report, the first page of the final report is a letter requesting the client's written response to the report recommendations.

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Audit Report In the response, the client should explain how report findings will be resolved and include its implementation . In some cases, managers may choose to respond with a decision not to implement an audit recommendation and to accept the risks associated with an audit finding. D) Final Report Internal Audit prints and distributes the final report to the unit's management. This report is primarily for internal management use.

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Audit Follow up Follow up Review Follow up Report 6th STEP : AUDIT FOLLOW UP

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Follow-up Review The client response letter is reviewed and the actions taken to resolve the audit report findings may be tested to ensure that the desired results were achieved. All unresolved findings will be discussed in the follow-up report.

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Follow-up Report The review will conclude with a follow-up report which lists the actions taken by the client to resolve the original report findings. Unresolved findings will also appear in the follow-up report and will include a brief description of the finding, the original audit recommendation, the client response, the current condition, and the continued exposure to the unit.

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Thank You MADE BY: DHWANI DESAI RIYASHEE JAIN