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Advisory Services - Coggle Diagram
Advisory Services
Overview
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Definition
IAs may perform advisory services as part of their normal activities or in response to requests by the board, senior management, or the management of an activity. Each an organization considers the type of advisory activities to be offered and determine whether specific policies or procedures need to be developed for each type of activity
Auditors generally should not agree to conduct an advisory engagement to circumvent requirements that apply to an assurance engagement.
- But methods may change if services once performed as assurance engagements are more suitable to an advisory engagement
Specialized consultations provided by IAs to help an organization's stakeholders improve operations without offering formal assurance or taking on management responsibilities. These services can range from advising on the development of new policies and systems to facilitating risk discussions and providing training. IAs perform advisory services to leverage their expertise and insights, adding value to the organization by enhancing decision-making and addressing potential challenges.
- In advisory services, IAs offer guidance to those involved in an organization, such as managers or board members. However, they do not provide formal evaluations or assume any management roles.
- The extent and details of these services are determined in consultation with those the internal auditors assist. For instance, they might offer recommendations on creating and launching new ventures, procedures or products.
- IAs can also conduct investigations (similar to detective work), offer training sessions, and help lead conversations about potential risks and how to manage them.
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Other Advisory Services
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Business Process Mapping
- One use of business process mapping (review) is reengineering. It involves process innovation and core process redesign. Instead of improving existing procedures, it finds new ways of doing things.
- Business process reengineering focuses on outcomes, not tasks. It seeks to (1) eliminate unnecessary tasks, (2) automate tasks if possible, and (3) optimize the remaining tasks requiring human involvement. The emphasis is on simplification and elimination of nonvalue-adding activities.
- Reengineering is not continuous improvement or simply downsizing or modifying an existing system. It should reserved for the most important processes. An organization may need to adapt quickly and radically to change.
- Total quality management (TQM) is the continuous pursuit of quality in every aspect of an organization's activities as a basic organizational function that is as important as production or marketing. It is also a strategic weapon because its cumulative effects cannot be easily duplicated by competitors.
- Business process mapping is a method used to visualize and analyze the various steps involved in a business process. It helps organizations understand how their processes work, identify areas for improvement, and redesign workflows more efficiently. The primary goal of business process mapping is to enhance outcomes by focusing on results rather than merely on tasks.
- The emphasis shifts to monitoring internal control so management can determine when an operation may be out of control and corrective action is needed. Internal audit may be able to use the technology to perform continuous or real-time auditing that monitors transactions and identifies anomalous activity for timely further investigation.
- Internal auditors may perform the functions of (1) determining whether the reengineering process has senior management's support, (2) recommending functions for considerations, and (3) developing audit plans for the new system. However, they should not become directly involved in the implementation of the process. This involvement would impair their independence and objectivity.
- Reengineering and TQM methods eliminate many traditional controls. They exploit modern technology to improve productivity and decrease the number of clerical workers.
- The emphasis is on developing controls that are (1) automated and self-correcting and (2) require minimal human intervention. Internal audit involvement in the initial stages is invaluable to ensure systems are not designed without appropriate controls, the absence of which might necessitate expensive modifications.
Due Diligence Auditing
IAs might review:
The compatibility of the organizational cultures,
Internal controls over information systems,
Finance and accounting issues (e.g., financial statements)
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Operations (e.g., purchasing, shipping and receiving, and inventory management)
Compliance with relevant laws, and
- The due diligence process establishes whether the expected benefits of the transaction (e.g., wider markets, more skilled employees, access to intellectual property, or operating synergies) are likely to be realized. It also may facilitate the realization of those benefits by improving the effectiveness and efficiency of the implementation of the transaction. Moreover, a due diligence approach may be used for other engagements, such as certain environmental audits.
- A due diligence engagement is a service in which internal auditors and others (e.g., external auditors, tax experts, finance professionals, and attorneys) verify the validity of the business justification for a major transaction (e.g., business combination, joint venture, or divestiture). This service also provides assurance if it results in an internal auditor's independent assessment. But it is an advisory engagement if the internal auditor merely provides counsel, advice, facilitation and training.
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