Implementation Guide 2320

Standard 2320 – Analysis and Evaluation

Internal auditors must base conclusions and engagement results on appropriate analyses
and evaluations.

Revised Standards, Effective 1 January 2017

Getting Started
While planning the engagement, internal auditors must develop a work program to achieve the
engagement objectives (see Standard 2240 – Engagement Work Program). For assurance
engagements, the work program must include the procedures for identifying, analyzing,
evaluating, and documenting engagement information (Standard 2240.A1). The 2300 series of
standards describes the actual implementation of these planned procedures.

Standard 2320 requires internal auditors to analyze and evaluate the information obtained
during the engagement before drawing conclusions. When planning the engagement and
creating the work program, internal auditors may have completed several engagement steps
and generated important information, including a risk and control matrix and an evaluation of
the adequacy of control design. The work program often links to workpapers that document the
work completed, information produced, and resulting decisions. Examples of typical
workpapers include: a planning memorandum or checklist, flowcharts or narrative descriptions
of key processes, a process-level risk map, and a risk and control matrix that documents the

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links between risks, controls, the testing approach, summaries of interviews, results, evidence,
and conclusions.

Considerations for Implementation

The transition from planning to performing an engagement may not be completely distinct,
because both phases involve some degree of analyzing and evaluating audit information.
Often during the planning process, internal auditors identify controls and evaluate the
adequacy of their design, because this helps them identify key controls to be tested further for
effectiveness.

Performing the engagement generally involves conducting the tests prescribed in the work
program to gather evidence about the operating effectiveness of key controls. Based on the
risk and control matrix and work program, internal auditors are likely to have a list of specific
procedures and tests to be conducted. Other factors that are usually established in the work
program include management assertions; testing objectives, criteria, approach, procedures,
and population; and sampling methodology and sample sizes. However, some details may still
need to be determined in the early stages of performing the engagement.

Ultimately, internal auditors seek to reach conclusions as a result of executing the work
program (e.g., a conclusion about whether controls are effective in mitigating risks to an
acceptable level). With sufficient information about both the design adequacy and the
operating effectiveness of controls, internal auditors can conclude on whether existing controls
are adequate to help achieve the objectives of the area or process under review.

The extent of testing depends on whether test results have produced sufficient audit evidence
on which internal auditors can base their conclusions or advice. If the testing procedures
prescribed in the work program do not provide sufficient information to make conclusions and
recommendations, internal auditors may need to adjust the testing plan and perform additional
testing. Standard 2240.A1 requires adjustments to the work program to be approved promptly.

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Analyses
Testing approaches often include a combination of manual audit procedures and computer-
assisted audit techniques (CAATs); the latter includes generalized auditing software programs
and programs that specialize in testing the processing logic and controls of other software and
systems. Like the testing information described previously, the engagement testing procedures
are usually determined during the development of the engagement work program (Standard
2240).

Internal auditors may test a complete population or a representative sample of information. If

they choose to select a sample, they are responsible for applying methods to assure that the
sample selected represents the whole population and/or time period to which the results will be
generalized. The use of CAATs may enable the analysis of an entire population of information,
rather than just a sample. Additional details about sampling techniques and CAATS may be
found in The IIA’s Supplemental Guidance.

Simple manual audit procedures include gathering information through inquiry (e.g., interviews
or surveys), observation, and inspection. Other manual audit procedures may take longer to
conduct, but generally provide a higher level of assurance. Examples of manual audit
procedures include:

 Vouching – Internal auditors test the validity of documented or recorded information

by following it backward to a tangible resource or a previously prepared record.
 Tracing – Internal auditors test the completeness of documented or recorded
information by tracking information forward from a document, record, or tangible
resource to a subsequently prepared document.
 Reperformance – Internal auditors test the accuracy of a control by reperforming the
task, which may provide direct evidence of the control’s operating effectiveness.
 Independent confirmation – Internal auditors solicit and obtain written verification of
the accuracy of information from an independent third party.

Analytical procedures are used to compare information against expectations, based on an

independent (i.e., unbiased) source and the premise that certain relationships between

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information can be reasonably expected in the absence of conditions to the contrary. Analytical
procedures may also be used during engagement planning (2200 series of standards).
Examples of analytical procedures include:

 Ratio, trend, and regression analysis.

 Reasonableness tests.
 Period-to-period comparisons.
 Forecasts.
 Benchmarking information against similar industries or organizational units.

Internal auditors may further investigate any significant deviations from the expectations to
determine the cause and/or reasonableness of the variance (e.g., fraud, error, or a change in
conditions). Unexplainable results may indicate a need for additional follow-up and may
suggest the presence of a significant problem that should be communicated to senior
management and the board (see Standard 2060 – Reporting to Senior Management and the
Board).

Evaluations
Internal auditors apply their experience, logic, and professional skepticism to evaluate the
information discovered throughout the engagement and reach logical conclusions. Internal
auditors generally approach engagements with an objective and inquisitive mind, searching
strategically for information that could fulfill the engagement objectives. At each step in the
engagement process, they apply professional experience and professional skepticism to
evaluate whether evidence is sufficient and appropriate to formulate conclusions and/or
recommendations. According to Standard 2330 – Documenting Information, internal auditors
must document information that logically supports the engagement results and conclusions.
However, this does not mean that internal auditors should exclude relevant information that
may contradict the conclusions.

Internal auditors often conduct a root cause analysis to identify the underlying reason for the
occurrence of an error, problem, missed opportunity, or instance of noncompliance. Root

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cause analyses enable internal auditors to add insights that improve the effectiveness and
efficiency of the organization’s governance, risk management, and control processes.
However, these analyses also sometimes require extensive resources, such as time and
subject matter expertise. Thus, when conducting a root cause analysis, internal auditors must
exercise due professional care by considering effort in relation to the potential benefits
(Standard 1220.A1).

Although complex issues may require more rigorous analyses, in certain circumstances a root
cause analysis may be as simple as asking a series of “why” questions in an attempt to identify
the root cause of a variance. For example:

The worker fell. Why? Because oil was on the floor. Why? Because a part was
leaking. Why? Because the part keeps failing. Why? Because the quality
standards for suppliers are insufficient.

Most root causes can be traced back to decisions, actions, or inactions by a person or multiple
people. However, determining a true root cause may be difficult and subjective, even after
internal auditors have performed an analysis of quantitative and qualitative data. In some
cases, multiple errors with varying degrees of influence may combine to form the root cause of
an issue, or the root cause could involve a risk related to a broader issue such as the
organizational culture. Therefore, internal auditors may choose to include input from several
internal and external stakeholders. In some cases, internal auditors may provide a variety of
possible root causes for management to consider, based on an independent and objective
evaluation of various scenarios as the root cause of an issue. When the time frame or skill
levels needed to complete the root cause analysis exceed that which is available within the
internal audit activity, the chief audit executive may recommend that management address the
underlying issue and conduct further work to identify the root cause.

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Considerations for Demonstrating Conformance

Workpapers generally document sufficient information about the engagement's analyses,
results, and conclusions to enable the reader to understand the basis of the conclusions.
Workpapers also typically describe the test population, sampling process, and sampling
method that the internal auditors used. Workpapers are cross-referenced in the work program.
Supervisory reviews of the engagement (Standard 2340 – Engagement Supervision) may
provide additional validation.

About The IIA

The Institute of Internal Auditors (The IIA) is the internal audit profession’s most widely recognized advocate, educator,
and provider of standards, guidance, and certifications. Established in 1941, The IIA today serves more than 180,000
members from more than 170 countries and territories. The association’s global headquarters are in Lake Mary, Fla.
For more information, visit www.globaliia.org or www.theiia.org.

About Implementation Guidance

Implementation Guidance, as part of The IIA’s International Professional Practices Framework® (IPPF®), provides
recommended (non-mandatory) guidance for the internal audit profession. It is designed to assist both internal auditors
and internal audit activities to enhance their ability to achieve conformance with the International Standards for the
Professional Practice of Internal Auditing (Standards).

Implementation Guides assist internal auditors in applying the Standards. They collectively address internal audit's
approach, methodologies, and consideration, but do not detail processes or procedures.

For other authoritative guidance materials provided by The IIA, please visit our website at
www.globaliia.org/standards-guidance or www.theiia.org/guidance.

Disclaimer
The IIA publishes this document for informational and educational purposes. This guidance material is not intended to
provide definitive answers to specific individual circumstances and, as such, is only intended to be used as a guide.
The IIA recommends that you always seek independent expert advice relating directly to any specific situation. The IIA
accepts no responsibility for anyone placing sole reliance on this guidance.

Copyright
Copyright® 2016 The Institute of Internal Auditors. For permission to reproduce, please contact [email protected].