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MANAGING THE INTERNAL AUDIT FUNCTION - Coggle Diagram
MANAGING THE INTERNAL AUDIT FUNCTION
Conflict :explode:
Conflicts within the internal audit department normally exist when:
IAs do not understand the internal audit process due to ambiguity and uncertainty.
IAs fail to think strategically and systematically.
Lack of understanding on the importance of the internal audit and challenges facing the profession.
Inherent Conflicts :fire:
Conflicts that exist within an organisation. For example, lack of communication in the organisation.
It is difficult to overcome but through proper action by the organisation management it can be minimised.
Avoidable Conflicts :fire:
Conflicts that exists within the internal audit department and process. For example, absence or lack of guidance, unclear instructions for assignment and incomplete review of working.
With proper audit guidance and manuals; clear instructions, directions and supervision and less biasness, conflicts can be avoided by internal auditors.
How to deal with conflicts? :fire:
Consider the positive aspects of the conflict because some of the conflicts may help the organization move towards its objective.
Compromise in situations where the auditees are more responsive to important findings rather than on less important findings.
The IA should try to appreciate & anticipated all potential sources of conflict & consider all possible solutions to the conflicts prior to any negotiation with the auditees.
Seek support from high level management especially the AC.
IAs should not feel guilty or e made responsible for situations having negative consequences as a result of the audit findings.
Internal auditors need to develop trust.
Internal auditors have to be salespersons.
Help the auditees to understand the audit objectives.
Internal auditors should be objective and factual about their findings.
Outsourcing :silhouettes:
Involves hiring a party outside of the company to perform services within an organisation’s business activities.
An external provider must be one who has specialised skills and experiences in a particular profession.
An external provider includes, among others, accountants, actuaries, engineers, lawyers, environmental specialists, fraud investigators and security specialists.
The internal audit activities that are outsourced relate to:
1)
areas where specialised skills and knowledge are required.
2)
valuations of assets
3)
determining work-in-progress
4)
fraud and security investigations
5)
mergers and acquisitions
6)
risk managements consultancy
Reasons for Outsourcing :question:
Lack of internal audit resources.
It may be necessary to have the temporary or permanent outsourcing solution in order to acquire timely, professional internal audit services and competent internal audit staff.
As part of the engagement the external provider will indirectly perform operational and financial reviews for the company.
Outsourcing Arrangements :silhouette:
Full Outsourcing :fountain_pen:
Execution of a full scope and risk-focused internal audit plan contracted to an external provider, usually from professional accounting firms.
An in-house contract with reporting responsibility to the BOD and AC will be appointed as a liaison with the selected accounting firm.
Requires the approval of the Audit Committee and reporting to the Board of Directors or other governing body.
Partial Outsourcing :pencil2:
Execution of the internal audit plan is partly done by an internal provider on an ongoing basis.
External provider will report to the head of the internal audit department.
Co-Sourcing :pencil2:
Execution of an internal audit plan is shared between an accounting firm and the organisation. In most cases, the outsourced party handles specialised areas (e.g. computer security auditing or special investigations) or those that are more cost effective to co-source.
Reporting should be made to the management and the Board of Directors.
Sub-Contracting :pen:
Involves the engagement of an external party for a limited period to undertake a specific engagement or a portion of some engagement.
In-house internal audit department will normally provide the management and oversight functions.