Auditing and assurance services 14e by arens chapter 26

Learning Objective 1Explain the role of internal auditors in financial auditing... Internal AuditingInternal auditing is an independent objective assurance and consulting activity desig

Internal and Governmental

Financial Auditing and Operational Auditing

Chapter 26

http://downloadslide.blogspot.com

Learning Objective 1

Explain the role of internal auditors in

financial auditing.

Internal Auditing

Internal auditing is an independent objective

assurance and consulting activity designed

to add value and improve an organization’s

operations

Risk Management

Controls

Governance Processes

Ensuring

Safeguarding

assets

Institute of Internal Auditors

Ethical Principles

Integrity

Objectivity Ethical Principles

Institute of Internal Auditors

Relationship of Internal and

External Auditors

to financial statement users

to management

Both must be competent, objective, use a similar methodology, and consider risk and materiality

Learning Objective 2

Describe the auditing and reporting

requirements under Government Auditing Standards and the Single Audit Act

Governmental Financial Auditing

The primary source of authoritative literaturefor performance of government audits is

which is issued by the GAO

Because of the color of the cover, it is usuallyreferred to as the “Yellow Book.”

Governmental Financial Auditing

The Yellow Book standards are often calledgenerally accepted government auditing

standards (GAGAS)

Financial Audit and Reporting Requirements – Yellow Book

Compliance auditing

Financial Auditing Standards of the Yellow Book

Reporting

Materiality

and significance

Consistent with GAAS/

Provide additional guidance…

Audit and Reporting – Single Audit

Act and OMB Circular A-133

The threshold for requiring a single audit is $500,000

The Single Audit Act and OMB Circular A-133

contain requirements for the scope of the audit

Legal Compliance

Internal Control

Risk Compliance

with GAGAS

An opinion on …

Legal Compliance

Internal controls

A report on …

Findings and Questioned

Learning Objective 3

Distinguish operational auditing from

financial auditing.

Operational Auditing

The purpose of operational auditing is todetermine the effectiveness or efficiency

of any part of an organization

Financial Auditing emphasizes whether historical information was correctly recorded while operational auditing emphasizes effectiveness and efficiency

Learning Objective 4

Provide an overview of operational audits.

Effectiveness refers to accomplishing objectives

without reducing effectivenessEffectiveness Versus Efficiency

Inefficiency Example

Acquisition of goods and

services is too costly

Bids for purchases of materials are not required

Raw materials are not

A duplication of effort

Effectiveness Versus Efficiency

Work is done that serves

without being used

There are too many

Effectiveness Versus Efficiency

Relationship Between Operational Auditing and Internal Controls

Reliability of financial reporting

Efficiency and effectiveness of operations

Compliance with applicable laws and regulations

Types of Operational Audits

Special assignmentsFunctional

Organizational

Who Performs Operational

Audits

CPA firms

Internal auditorsGovernment

auditors

The two most important qualities

for an operational auditor

Independence and Competence

of Operational Auditors

IndependenceCompetence

Learning Objective 5

Plan and perform an operational audit.

Phases in Operational Auditing

Evidence gathering and evaluation

End of Chapter 26