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Financial Audit Assurance

Ensuring Compliance and Financial Integrity

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The Objective of Internal Control Assurance

Controls are in place to support principal executives and financial officers’ certifications in regard to financial statements, controls, and disclosures, for the laws make them personally responsible for these matters.

Ensured that the organization is adhering to the processes and procedures that control any type of financial activity.

The role of internal auditors

The internal auditor performs procedures to provide a level of assurance to senior management and the audit committee of the governing board that controls surrounding the processes supporting the development of the financial report are effective.


Internal auditing is done in conformance with the standards.

Risk Identification in Internal Auditing

Risk-Based Work Plans
Internal audit's work plan is based on identified risks and assessment of risk management processes.
Key Risk Areas
New businesses, products, systems, joint ventures, restructuring, management estimates, environmental matters, and regulatory compliance.
Assessment Reporting
The CAE provides internal audit's assessment of controls to the audit committee.

Risks

The work plans and specific assurance engagements of the internal audit activity:

  • Identification of the exposures facing the organization, the internal audit’s work plan is based on the risks and the assessment of the risk management and control processes maintained by management to mitigate those risks.

 

Among the events and transactions included in the identification of risks are:

  • New businesses including mergers and acquisitions
  • New products and systems
  • Joint ventures and partnerships
  • Restructuring
  • Management estimates, budgets, and forecasts
  • Environment matters
  • Regulatory compliance


The CAE provide internal audit’s assessment of controls, including the design or model, to the audit committee.  The governing board must rely on management to maintain effective controls.

The controls are deemed to be effective that include the following factors:

A strong ethical environment and culture in the organization is maintained.

The organization identify and manage risks properly.

The control system over the financial reporting process is effective.

  • Board members and senior executives have set examples of high integrity.
  • The performance and incentive targets are realistic.
  • The board members and senior executives create appropriate pressure for short-term results.
  • The organisation’s code of conduct is reinforced with training and top-down communication.
  • The organisation’s communication channels are open and all levels of management get the information they need.
  • There is zero tolerance for fraudulent financial reporting at any level.
  • A risk management process is maintained and effective.
  • Risk management is throughout the organization.
  • Major risks are candidly discussed with the board.
  • The organization’s controls over the financial reporting process are comprehensive, including preparation of financial statements, related notes, and other required and discretionary disclosures that are an integral part of the financial reports.
  • Senior and line management demonstrate that they accept control responsibility.
  • There is not that an increasing frequency of “surprises” occurring at the senior management, board, or public levels from the organization’s reported financial results or in the accompanying financial disclosures.
  • There is good communication and reporting throughout the organization, especially for timely disclosure of bad news.
  • Controls are seen as enhancing the achievement of objectives or as a “necessary evil”.
  • Qualified people are hired promptly, and they receive adequate training.
  • Problem areas are fixed quickly and completely.

The controls are deemed to be effective that include the following factors:

A strong ethical environment and culture in the organization is maintained.

  • Board members and senior executives have set examples of high integrity.
  • The performance and incentive targets are realistic.
  • The board members and senior executives create appropriate pressure for short-term results.
  • The organisation’s code of conduct is reinforced with training and top-down communication.
  • The organisation’s communication channels are open and all levels of management get the information they need.
  • There is zero tolerance for fraudulent financial reporting at any level.

The organization identify and manage risks properly.

  • A risk management process is maintained and effective.
  • Risk management is throughout the organization.
  • Major risks are candidly discussed with the board.

The control system over the financial reporting process is effective.

  • The organization’s controls over the financial reporting process are comprehensive, including preparation of financial statements, related notes, and other required and discretionary disclosures that are an integral part of the financial reports.
  • Senior and line management demonstrate that they accept control responsibility.
  • There is not that an increasing frequency of “surprises” occurring at the senior management, board, or public levels from the organization’s reported financial results or in the accompanying financial disclosures.
  • There is good communication and reporting throughout the organization, especially for timely disclosure of bad news.
  • Controls are seen as enhancing the achievement of objectives or as a “necessary evil”.
  • Qualified people are hired promptly, and they receive adequate training.
  • Problem areas are fixed quickly and completely.
A strong monitoring process is maintained

01

The board is independent of management, free of conflicts of interest, well informed, and inquisitive.

02

Internal audit has been supported of senior management and the audit committee.

03

The internal and external auditors have and use open lines of communication and private access to all members of senior management and the audit committee.

04

Line management is monitoring the control process.

05

There is a program to monitor out-sourced processes.

Internal controls include the following

  • Properly documented policies, procedures, controls, and monitoring reports.
  • Quarterly checklists of procedures and key control elements.
  • Standardized control reports on key disclosure controls.
  • Management self-assessments (such as CSA).
  • Review of draft regulatory filings prior to submission.
  • Process maps to document the source of data elements for regulatory filings, key controls, and responsible parties for each element.
  • Follow-up on previously reported outstanding items.
  • Consideration of internal audit reports issued during the period.
  • Special or specifically targeted reviews of high-risk, complex, and problem areas, including material accounting estimates, reserve valuations, off-balance-sheet activities, major substitutions, joint ventures, and special purpose entities.
  • Observation of the closing process for the financial statements and related adjusting entries, including waived adjustments.
  • Conference calls with key management from remote locations to ensure appropriate consideration of and participation by all major components of the organization.
  • Review of potential and pending litigation and contingent liabilities.
  • CAE report on internal control, issued at least annually and possibly quarterly.
  • Regularly scheduled disclosure and audit committee meetings.

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Financial audit assurance engagements

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Performance Improvement and Benchmarking

1. Performance Improvement Engagements

Example: A logistics company optimizes its supply chain through process reviews and new software solutions.

2. Benchmarking Engagements

Example: Comparing employee engagement levels against industry standards to identify areas for cultural and workplace improvements.

Types of Consulting Engagements

1. Advisory Engagements

Consultants provide expert advice to address specific challenges or opportunities.

2. Implementation Engagements

Consultants manage projects such as ERP system integrations, ensuring smooth execution and post-implementation support.

3. Innovation Engagements

Developing new products or services to align with consumer trends and drive competitive advantage.

Overview of Consulting Engagements

Technology Consulting Engagements

  • Technology consultants leverage tools and innovations to solve specific business problems.
  • Example: An insurance company automates claims processing, reducing manual tasks and improving customer satisfaction.

Overview of Consulting Engagements

Diverse Consulting Engagements for Operational Excellence and Innovation

  • Consulting engagements are diverse, providing expert advice, implementing solutions, driving innovation, and benchmarking organizational performance.
  • Consultants work across various areas, including operational efficiency, technology implementation, and performance improvement.

Financial and Compliance Audits

1. Financial Audit Engagements

Financial audits ensure adherence to processes and procedures controlling financial activities. Reliable financial reporting is a key objective, satisfying legal and regulatory requirements while promoting efficiency and stewardship.

2. Compliance Audit Engagements

Compliance audits evaluate the adequacy and effectiveness of controls that ensure adherence to applicable laws, regulations, contracts, and internal policies.

Performance and Operational Audits

1. Performance Audit Engagements

Internal auditors perform efficient and cost-effective audits by focusing on Key Performance Indicators (KPIs), which reflect progress toward organizational objectives. Types of KPIs include quantity, accuracy, cost, timeliness, capital, and revenue standards.

2. Operational Audits

These audits focus on governance, risk management, and controls related to operational efficiency and effectiveness. They are often referred to as management audits in government environments.

Types of Assurance Engagements

1. Control / Risk Self-Assessment

A useful and efficient approach for managers and internal auditors to collaborate in assessing and evaluating control procedures. This assessment integrates business objectives and risks with control processes.

2. Quality Audit Engagements

Internal auditors measure an organisation’s current operations against a set of standards or controls. We assess the quality of the organisation’s controls and determine if controls are being updated and enhanced as organisational activities, industrial practices, and technology evolve over time.

3. Due Diligence Audits

Due diligence involves investigating a person, business, or financial transaction to establish the value of an entity or transaction and the cost of associated liabilities.
Common situations include:

    • Financial audits in banking, securities, mergers, or acquisitions.
    • Real estate assessments of properties and structures.
    • Intellectual property evaluations.