Chapter 21 - Other Audits
 Internal
Audits
(More who does than type of audit)
 Operational
Audits
 Compliance
Audits
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Internal Auditors
•
Employee of the company or organization
they audit, but some audit subcontractors.
•
They often:
Perform operational, compliance & internal
control audits.
Perform advisory or consulting services.
Report to the audit committee of the board of
directors and to the CEO/president.
•
The Institute of Internal Auditors is the
international organization.
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Major Developments Affecting the
Internal Auditing Profession
 Need for additional assurance about financial information
 Demand by stock exchanges and SEC for management to
assume more responsibility for financial information
 Need for assurance about the reliability of operational
reports
 Demand for solutions to operational problems
 Passage of the Foreign Corrupt Practices Act of 1977
 Report of the National Commission on Fraudulent Financial
Reporting (Treadway Commission – COSO)
 Report of the Blue Ribbon Committee on Audit
Effectiveness (1998)
 Passage of the Sarbanes-Oxley Act of 2002
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Internal Auditing
Purpose of Internal Auditing:
An independent, objective assurance and consulting activity
designed to add value and improve an organization’s operations.
It helps an organization accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance
processes.
Assist member of organization in performing their
responsibilities by furnishing them analyses, appraisals,
recommendations and counsel
Part of organization’s internal control - high level control that
measures & evaluates effectiveness of other controls
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Professional Standards and Ethics
for Internal Auditors
 Somewhat similar to professional auditing
standards for CPAs, but more general as
internal audit varies widely and public does
not rely on their work.
 One primary exception is Degree of
Independence.
 Similar, but much less restrictive code of conduct
or ethics - Primarily because of lessened
independence and reliance by outsiders.
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Operational Audits
Make recommendations to improve:
 Economy of Operations
 Efficiency of Operations
 Effectiveness of Operations
So: Impact the FUTURE
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Attesting to Compliance with
Laws and Regulations
• Applying Agreed-Upon Procedures to
Specified Requirements
• Applying Agreed-Upon Procedures to
the Effectiveness of Internal Controls
• Performing Examinations
(Complete opinion on compliance)
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Auditing and Reporting on Compliance
with Laws and Regulations
GAAS (Financial Statement) Audit


Procedures
• Tests of compliance with laws and regulations generally recognized
as having a direct and material effect on the financial statements
Report
• Opinion on the financial statements
Audit under Governmental Audit Standards


Procedures
• Basically same as GAAS + added communication & documentation
Reports
• Opinion on financial statements
• Report(s) on compliance with laws/regulations & on internal control
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Auditing and Reporting on Compliance
with Laws and Regulations
Single Audit Act Audit
 Procedures
 Same as GAAS, plus:
• Tests of compliance with requirements applicable to major
federal assistance programs.
• Tests of controls over major federal assistance programs.
 Reports
 Same as Government Auditing Standards,
• Report on schedule of federal award expenditures.
plus:
• Summary report of audit results relating to financial
statements, internal control, and compliance.
• Report of findings and questioned costs.
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Single Audit Act (1 of 2)

Statutory requirement to test (i)controls over
compliance and (ii)compliance with
program/regulatory requirements.

Applies to states & local governments,
universities and nonprofit organizations that
expend $500,000 or more within a fiscal year
in federal financial assistance funds.
(changing to $750,000 per FY)

Audits are more extensive than a F.S. audit.
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Single Audit Act (2 of 2)
Requirements include determining and reporting on:

Financial Statements are presented fairly in all material
respects in accordance with generally accepted accounting
principles.

Schedule of Expenditures of Federal Awards is fairly
presented in all material respects in relation to the financial
statements taken as a whole.

Entity complied with the provisions of laws, regulations, and
contracts or grants that may have a direct and material effect
on each major federal financial assistance program.
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