Internal Audit
(TAKEWAYS OPERATIONAL AUDITING)
An internal audit is established siya within an
organization to examine and evaluate yung
mga activities as a service to the
organization. Included din dito yung pag
conduct nila ng financial audits, examine an
operation’s compliance with organizational
policies… An external audit is an
independent attestation performed by an
expert - sila yung nag eexpress ng opinion
regarding sa presentation ng financial
statements.
INTERNAL AUDIT
Advantage of Internal Audit
Its advantage talaga is it facilitate an efficient
organization management. With the right
internal audit, yung pag identify ng mga
improper procedure within the firm is naassist in fixing them to increase process
efficiency.
What is Integrity? Although we are not
perfect,
but
through
integrity,
napagkakatiwalaan tayo ng mga tao sa
paligid natin. It reflects how we value our
morals and credibility. As a student, kumbaga
it’s a reflection of what we are capable to do
and being responsible sa mga actions natin.
The objectives of the review will depend on
several factors. The objectives for the review
could be driven by:
1.
2.
3.
4.
New rules
Poor performance
Compliance issues
Anomalous revenues or expenses
Role: Provide independent, objective
assurance, and consulting services to
organization.
IIA = Institute of Internal Auditor (1941)
adapted by the internal audit which is why
naka-aligned ang theories nila rito.
The audit function, nag focused naman sila
in assessing an organization’s control or
operation effectiveness with standardization
with the use of checklist, prepared
questionnaires, and reviewing the same
documents after year to verify consistency.
The focus of standardization limited the
auditor’s ability to be creative.
Kung si auditor is pinoprotektahan niya yung
kaniyang independence, si organization
naman is nagbabago due to globalization,
advance
technology,
and
relentless
competitions, etc.
Sabi, marning auditors ang hindi nakasabay
sa pagbabago or they were slow to adapt to
the changing landscape and instead na
naniwala sila na it will still operate just the
way it was before kaya naman ang naging
result nito is maraming auditor ang naging
irrelevant.
Ngayon naman is yung mga internal audit is
updated na, kumbaga mas balance na yung
operational, reporting, compliance, and with
information technology.
DEFINITION AND CHARACTERICSTIC OF
OPERATIONAL AUDITING
Operational Auditing – A future-oriented,
systematic, and independent evaluation of
organizational activities.
Done to benefit the organization’s
stakeholders who trust internal auditors to
identify anomalies, and that organization
structure and operating is working effectively.
What is Operational Audit?
Ang Operational Audit is an analysis ng
organization’s operational procedure. It
reviews yung mga policies ni organization, as
well as their practices, and system. Itong
operational audit is hindi lang yung financial
status ng organization ang ineexamine,
kundi yung management practices din. It
looks for a way to improve the productivity,
effectivity, and efficiency ng operation ng
isang organization.
Importance of Operational Audit
Itong operational audit kasi, since we are
talking about operation, it provides a fair
evaluation sa systems, sa mga procedures,
and check yung mga internal controls in
place if they are functioning appropriately. It
also makes sure na mabawasan nito yung
mga risk and ma-accomplish ni organization
yung kaniyang mga naka-set na objectives.
The definition contains some key language
that is important to note:
1. Independence – it has to do with the
position of internal audit within the
organization’s hierarchy. And to be
recognized as independent, si auditor
is dapat free from any obligation or sa
interest kay client.
2. Objectivity – free from bias nga,
without any agenda or other motive
aside sa pag examine ng mga
documents and process procedures
truthfully.
Meron
talagang
pagkakataon na may conflict of
interest pero si auditor is need niyang
mag maintain ng balance to obtain a
healthy professionalism.
3. Assurance
–
si
auditor
is
knowledgeable enough to give
confidence and make statement
regarding sa condition matter within
the organization. It is often
considered
a
synonym
to
“compliance”
And as we all know, si internal auditor is
nagbibigay lang siya ng reasonable
assurance but not absolute assurance kasi
nga maraming variables within the audit
procedures.
Compliance can be driven by requirements
that are internal or external, regulatory or not,
explicit or implied.
According to the report, there are four (4)
main reasons why organizations report:
a) Provide
shareholders
more
transparency
b) Gain competitive advantage
c) Improve
risk
management
capabilities
d) Respond to stakeholder pressure
Kapag sinabi kasi natin na “stakeholder” ito
yung mga tao or group of people na
apektado ng policies, decision, and actions
ng isang organization.
Making sure that there is a fair treatment and
consistent,
universal
adherence
to
established social regulations are key
objective of compliance reviews.
4. Consulting – ito naman is giving
advice sa management and the
board, and engage in activities that
helps the organization resolves
business issues. With the help of this,
mas
na-aaddress
natin
yung
performance, improvement na need
ng organization, process, and
activities.
5. Design to add value – this shows
the importance of having an internal
auditor within the organization.
Siguro sa tingin ng iba, lalo na sa
mga non-auditors is gastos lang ang
pagkakaroon ng internal auditor
since may regulations naman, may
BOD naman, pero in reality is ang
mga internal auditors kasi is
6.
7.
8.
9.
nakakapagbigay ng objective and
relevant assurances as well as
contributes to the effectiveness of risk
management and control processes.
Improve
an
organization’s
operation – ang mga internal auditor
kasi nga is nakakapagbigay ng
objectives and relevant assurance
and contributes to the effectiveness
of risk management and control
processes.
Help an organization accomplish
its objectives – many auditors
practices what has been commonly
referred to as control-based
auditing in essence kasi they look for
the controls within the process or
program and then check kung lahat is
present and working accordingly.
Sinasabi na si auditor to help the
organization
accomplish
its
objectives is to addressed those risk
na pwedeng maka-apekto doon sa
mag accomplish nila ng objectives.
By
bringing
a
systematic,
disciplines approach – this is
encapsulated in the Standards, the
Practice Guides and Practice
Advisories
na
nagbibigay
ng
guidance on how to plan, execure,
and communicate para makakuha ng
magandang result.
To evaluate and improve the
effectiveness – ang role kasi ni
auditor is beyond sa pag eevaluate
ng business dynamics or to write
audit report. Nakakatulong din kasi ito
sap ag improve ng ability ni auditor to
achieve its goals and objectives like
risk management (refers to the
identification,
measurement,
assessments, and response to risk)
control (activities that mitigate
relevant risks and help the
organization
avoid
surprises)
governance process (wide subject
that includes matter related to
organization structure, reporting
lines, span of control, resources
allocation, accountability, discipline,
rewards mechanism)
THE OTHER PARTS OF THE DEFINITION
The word “consulting” thinking in terms of the
auditors’ attitude, disposition, frame of mind,
and working practices.
Example: many internal auditors focus on
one-on-one
interviews
and
practice
facilitated sessions, where you bring
together several employees for discussion,
fact finding, brainstorming solution.
Another work, “improve an organization’s
operations” make sure that control activities
are performed accordingly as well as
checking risk for slowdowns, reword, and
other operational malfunctions that are result
of what consider “other type of risk:
Another important aspect of operational
auditing is rather than merely verifying that
employees are performing their duties
according to policies and procedures,
internal auditor also verifies of qualitative
aspects of the organization and its activities.
In the end, operation auditing is design to
evaluate the effectiveness and efficiency of
business activities, process, programs,
functions, and units. The scope may be
different from traditional fiscal-year scope,
periods, since achieving these objectives
may require an analysis of multiple time
period to identify, analyze, and understand
trends, patterns, outliers, and other positive
or negative dynamics of interest.
THE RISK-BASED AUDIT
Ang risk-base in auditing is an approach na
kumbaga naka-focus to identify ano ba yung
mga need i-prioritize na area na mataas yung
risk within the organization and providing an
audit plan to address those risks.
Si Internal auditor is ginagamit itong
approach na ito to develop plans and para
mas maging mas maintindiahan natin yung
risk na meron si organization. Halimbawa
nito is yung mga risk like sa production
delays, wastage, hindi magandang customer
service, high employee and customer
turnover, and pagkakaron ng mga system
failure.
The drive to achieve diversity provides a
competitive edge for the profession as we
broaden our recruitment efforts and thrive to
make sure that every auditor individually, and
internal audit departments collectively,
possess the knowledge and proficiency to
perform their duties.
This concept of risk-based auditing is in
contrast to what has been dubbed controlsbased auditing. The latter is defined as audit
that focus on identifying and evaluating
internal control without enough regard to
their value to the process.
This can happen because auditors take a
preexisting
work
program
without
researching the nuances of the present audit
scope sufficiently or even when they perform
planning activities, their interviews and other
research only focuses on identifying existing
controls without fully understanding the key
risks and objectives of the process under
review.’
Kapag kasi control-based approach, si
auditor is then listens and searches for
references to control with the intention to
verify yung existence and effectiveness and
ang epekto nila ito that they are testing the
control in relative isolation nang hindi
naiintindihan ng buo yung connection nito sa
objectives and risk ng program under review,
Sa risk-based naman kasi, it requires more
brainstorming, more interactions sa process
owners, a more in-dept understanding sa
organization’s business and machnisim to
address past, present, future vulnerabilities.
In short, internal auditors is to anticipate the
needs of stakeholders, develop forwardlooking risk management practices, and
support the business objectives, identify,
monitors, and deal with emerging technology
risk and enhance audit finding through the
greater use of data analytics.
AUDITING
BEYONG
FINANCIAL,
AND
REQUIREMENTS
ACCOUNTING,
REGULATORY
The other key focus area was compliance
with regulatory requirements. In this case,
auditors adopted a fairly binary approach to
audit by attempting to understand the rules
and regulations affecting a program or
process. They then would apply a very
effective methodology: Are they doing what
the rulebook says? If “Yes”, the test results
were satisfactory. If “No” the results were
documented and communicated as findings.
Over time, business leaders and managers
witnessed business failure caused by poor
management decision and practices. By
poor management, referring to inadequate:
Operations management – nagiging waste
lang, inefficiencies, and poor customer
satisfaction and limited lang yung capacity to
grow as opportunities arise or customer’s
demand change.
Human resources – nakikita ito or reflected
sa poorly supervised, trained, and evaluated
employees
who
sometimes
become
unmotivated and unproductive.
IT – pagdating naman sa computer,
nangyayari ito kapag maling data ang
nailagay or iba sa kailangan ng business
kaya nag reresulta ito sa maling reporting
mechanism
Marketing – nagiging sayang lang yung pera
for marketing kung hindi naman appropriate
yung way lalo na kung maling target
consumer.
CSR – issues range from child labor,
sweatshop
conditions,
abusive
management, and inappropriate waste
disposal.
Environment Health and Safety (EHS) – ito
is mga practices and condition related sa
poor ventilation, excessive hear, extreme
noise level, and workplace hazard cause by
chemicals…
Advisory and Consulting engagement are
performed to take advantage of internal
auditor’s broad skillset and experience. High
level
of
financial,
accounting,
IT,
management, and business analysis skills
are typically required to perform these
reviews.
THE VALUE AUDITORS PROVIDE
Sadly, yung mga internal auditor hindi
ganoon napapahalagahan. There are
managers and employess na hindi
narerecognize
yung
importance
ng
pagkakaroon ng internal auditor.
Ang mga internal auditor, they provide
efficient and effective use of resources.
Since organizations operate with the funding
received or authorized by their owners or
contributors, it is imperative that the
organization operates with this principle of
financial fiduciary responsibility
A fiduciary duty is a legal duty to act solely in
another party’s interests. Parties owing this
duty are called fiduciaries. The individuals
to whom they owe a duty are called
principals. Fiduciaries may not profit from
their relationship with their principals unless
they have the principals’ express informed
consent. They also have a duty to avoid any
conflicts of interest between themselves and
their principals or between their principals
and the fiduciaries’ other clients.
Recognition of the duties that all employees
have to the principals is central to the proper
discharge of their responsibilities as
employees, who should always act in the
interests of the main stakeholders of the
organization.
To this effect, internal auditors contribute to
this process by making sure that these duties
are defined, that structures are set to ensure
behaviors are aligned with these objectives,
and making recommendations to the board
and senior management when there are
discrepancies jeopardizing the success of
these arrangements.
In the aggregate, internal auditors serve the
public and common interests by making sure
that owners receive the return on their
investments that they are entitled to, and that
the means of generating those profits are
within the confines of the law.
STAKEHOLDER
Kung ang mga stakeholder can facilitate the
attainment of objectives or make decisions
regarding resources, it is imperative that
auditor understand their role and influences.
Ang stakeholder kasi is may power to use
resources para sa gumawa ng isang event or
to secure a desired outcome. In general, ang
stakeholder power can be categorize as
political power, voting power, economic
power, and legal power.
When it comes naman sa conducting a
stakeholder analysis, importante na yung
aspect of modern internal auditing kasi it
gives the auditor an appreciation for the
various parties interested sa outcome and
outputs ng organization as well as its
programs and related process.
In addition, dapat daw sa planning phase
palang is ma-identify na agad natin yung
mga internal and external stakholders to
make sure they seek their input as to what
their objectives, and plans are for the area
audited.
Integrated Auditing
Isa sa mga naging important development
daw over the past decades is the emergence
of integrated auditing as type of audit. Based
on online definition, and integrated audit is
one that combines yung examination ng
financial statement with an evaluation of
internal control.
Level 5: Optimizing = Integrated Auditing
recognized as a change agent, continuously
improving its professional practices.
Level 4: Managed =
CHAPTER 2
The objectives for the review could be driven
by
1. New Rules – it can be established
internally (policies and procedures) or
externally (new or updated
regulations) or a combination.
laws
and