Communicating Internal Audit Results
Communicating Internal Audit Results
Communicating Internal Audit Results
Audit Results
Standards with Practical
Cases
1
Learning Objectives
Familiarize with the Standards of
Communicating Audit Results
Understand the purpose of engagement
communication
Learn the features of best practice in
audit communication
Be aware of the issues and risks in report
writing
Familiarize with effective strategy in
developing audit reports
Familiarize with the ideal structures of
Internal Audit Report
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Definition of Internal Auditing
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I. INTERNATIONAL STANDARDS FOR THE
PROFESSIONAL PRACTICE OF INTERNAL
AUDITING(STANDARDS)
2400 Communicating Results
Internal auditors must communicate the
results of engagement
2410 Criteria for Communicating
Communications must include the
engagements objectives and scope as
well as applicable conclusions,
recommendations, and action plans
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Standards
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Standards (Cntd)
2420 Quality of Communications
Communications must be accurate, objective,
clear, concise, constructive, complete, and timely.
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Standards (Cntd)
Constructive communications are helpful to
the engagement client and the organization
and lead to improvements where needed.
Complete communications lack nothing that
is essential to the target audience and include
all significant and relevant information and
observations to support recommendations
and conclusions.
Timely communications are opportune and
expedient, depending on the significance of
the issue, allowing management to take
appropriate corrective action.
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Standards (Cntd)
9
Standards (Cntd)
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Standards (Cntd)
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II. What it is and what it does ?
What it is?
Reports are Internal Auditors
opportunity to get managements
complete attention.
A perfect occasion to show how Auditors
can help Mgt by informing important
events they would otherwise not know
about.
However, most of the time auditors do
not take this golden opportunity. Rather
they feel satisfied just for finishing the
report writing.
Unfortunately, auditors do not sell their
Audit reports as a vendor sells his goods.
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What it is and what it does ? (Contd)
What it does?
Alert management to matters needing
correction or improvement by:
Whom it serves?
External Auditors
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What it is and what it does ? (Contd)
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What it is and what it does ? (Contd)
Facilitates corrective
action / improvement.
Means to gain support of higher
management for issues that require their
attention.
Serves as window in to operation for busy
managers.
Means to evaluate operating performance.
Source of objective information about
controls and operations.
Promotes disciplined operations.
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Report Writing Frictions
Auditing or Reporting?
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Report Writing Frictions (Contd)
Supervisory rewriting - leaves the
auditor unpleased. How does it feel ?
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Report Writing Frictions (Contd)
Toomuch time spent on reports: CAEs
usually set a high standard of reporting
and review procedures which take
considerable time
Poor Drafts Auditors most of the time
are concerned with auditing than writing.
Poor writing skills many Auditors are
not skillful writers.
Disagreement between Auditors and
Supervisors the disagreement ranges
from grammar and spelling to logic,
interpretation of observed conditions and
rework.
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Report Writing Frictions (Contd
Writing report far from the site of the
audit- Many reports are written in the
office. As a result, some important
information might be missing or issue is
totally disregarded. Besides, time tends
to dull memories of the Auditor.
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Report Writing Frictions (Contd)
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Report evaluation
Do your reports clearly explain the areas
and risks that each individual review has
covered?
Do your reports include a clear executive
summary including scope of work, risks
covered and key issues arising?
Are your reports on average five pages or
less?
Are your reports finalized within two
weeks of completion of the fieldwork?
Do your reports contain a clear action
plan including action, planned date of
completion and who is responsible for
implementing the action?
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Report evaluation-Contd
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Report evaluation-Contd
Do management really buy-in to the
actions contained in the audit report?
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III. What is the remedy?
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What is the remedy? -Contd
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What is the remedy? (contd)
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What is the remedy? (contd)
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Practical Cases (Contd) Case- 1
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Practical Cases (Contd) Case- 1
3. Cause:-The standard requires all elements of
findings however, the findings reported above is
missing the element of Cause.
The internal audit recommendations
basically depend on the Cause element of
audit finding.
Therefore, the auditor shall carefully
analyze the cause element of a finding and
shall state it on the findings write-up sheet.
The cause element of a finding requires the
auditors careful judgment
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Practical Cases (Contd) Case- 1
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Practical Cases (Contd) Case- 1
6. Auditees response:- This part shall clearly
indicate the Auditees acceptance or non-
acceptance of the finding. If it is accepted by
the auditee, justifiable reason for non-
performance shall be given and the
corresponding action plan shall also be
provided. If not accepted :- here also
justifiable reason with supporting
document/evidence shall be provided for the
higher management consumption.
7. The auditees action plan shall state the
completion time frame as well as the
responsible body for all accepted findings and
shall be reported as annex to internal audit
report instead of as element of findings.
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Practical Cases (Contd) Case- 1
The standard requires all elements of findings.
Accordingly, my suggestion would be:-
Condition The following outstanding receivables
are kept in the books of the unit for more than a year
Date Amount Description
1.------------- -------------- -----------------------------
2. ------------- -------------- -----------------------------
Criteria- The operation manual of the unit requires
to collect such type of receivables in a maximum
period of one year otherwise shall be forwarded to
the write-off committee
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Practical Cases (Contd) Case- 1
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Practical Cases (Contd) Case- 1
Audittees response- Accepted/Agreed-
Even though several reminders were
sent to the client , the receivables are
still outstanding and it seems un-
collectible. Therefore, the o/s
receivables will be forwarded to the
write-off committee and will be taken
action accordingly. The unit will assign
professional staff to the job. The action
plan is attached.
Auditees action plan- Shall be
attached as Annex to the report.
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IV. Important issues to be considered
in good report writing
1. Discussion with auditee
2. Factual Reports
3. Precision
4. Clarity
5. Proper Background, scope and
objective.
6. Conciseness
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Important issues .Contd
7. Constructive tone
8. Perspective
9. Audit Conclusion / Opinion
10. Audit recommendation
11. Auditee Accomplishment
12. Interim reports / Preliminary report
13. Summary reports
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Important issues . Contd
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1. Discussion with Auditee
Confirm facts as you go through /
communicate.
It is also important to discuss cause,
effect and recommendation before the
report is released. Since clients know
better about the operation than the
auditors.
Differences with client other than the
fact could be stated in the final
engagement communication.
Early rectification is facilitated.
Avoids surprises.
Improved comm. b/n auditor & Auditee
improves report quality.
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2. Factual Reports
Audit reports must always be completely
factual.
Report items should be based on a well
documented facts and inescapable logic.
Everything should be what we have
observed or validated to be factual.
Otherwise source should be disclosed.
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3. Precision
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4. Clarity
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4. Clarity Contd
The main rule in writing is to know the
reader & their needs.
Avoid emotions and feelings.
Do not obscure the major finding amidst
trivial issues.
Use powerful descriptions, e.g., instead of
reporting Goods Receiving Notes are
not reconciled with invoices, use there
is no assurance that the company
receives what it is paying for.
Use charts, graphs, tabulations and
pictures, if found necessary.
For emphasis, use bullets, boldface, italics,
etc.
Use titles / headings that easily lead the
reader to the subject matter.
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5. Proper Background, scope and objective.
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6. Conciseness
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What is the ideal size of an audit
report?
In as much as possible the main audit
report should not be more than five
pages.
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7. Constructive tone
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8. Perspective
It relates to objectivity
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9. Audit Conclusion / Opinion
Auditors overall opinion in relation to
the audit objective is very important.
(e.g. there is adequate control over., such
and such task is being performed efficiently
and effectively, or vise versa)
Auditors opinion is a must in many
progressive audit shops.
The main thing is keeping the main thing
the main thing.
If the Auditee deserves to be
complemented for its exceptional
accomplishment, the auditor should do
so. This results in a significant reward.
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10. Audit recommendation
Auditors recommendation should only
be considered as options to operating
management.
Should not come out as a surprise at last.
Should be well discussed with in due
course of the audit.
Always operating staff /mgt. are more
knowledgeable about operations than the
auditor.
Lets not take the credit for the
recommendation.
Have regard for the cost of implementing
a recommendation except for
compliance and regulatory issues.
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11. Auditee Accomplishment
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12. Interim Reports / Preliminary
Report
Useful when early information to
management and timely corrective
action is necessary.
Should not be considered as a substitute
for a final report.
If the issue raised is adequately
addressed, it may be excluded from the
final report or may be disclosed
accordingly.
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13. Summary Reports
The objective of Internal Auditing is to
get sr. Mgt. Interested and read the audit
report and take corrective action.
However, executives do not have time to
go through the detailed audit reports.
Hence, auditors significant findings could
be summarized in one page or a
maximum of two.
Internal Auditors should be careful
enough to put themselves in the shoe of
busy managers and raise issues which are
of concern to management.
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13. Summary Reports- Contd
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15. Timeliness
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16. Report Distribution
To operating management taking
corrective action.
Sr. management who can enforce
corrective action.
In case there is important information to
be disclosed or error is found out, the
CAE should ensure that a new report is
issued clearly highlighting the
amendments.
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17. Legal considerations
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18. Proper editorials
Review each report at least 3 times.
Get clear understanding of what is being
said.
Ensure each sentence is needed and says
what it intends to say.
Judge the style, syntax, and capitalization.
Avoid shaky grammar and faulty
punctuation (use grammar and
spellchecker).
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18. Proper editorials Contd
Poorly proofread reports can cruelly
blemish and downgrade a well written,
soundly documented audit reports.
Simple mistake diverts attention and the
reader starts to think about the writer
than what is written.
Compare the final with the draft report
preferably by another auditor
Check references (references, indexes,
figures, etc) might have been wrongly
changed in due course of review.
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19 Restricted Information
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V. Effective strategies for report
writing
Full wording of acronyms when first used.
Recommendations should be precise and
resolve the problems.
Recommendations should cure the cause
not the symptom.
Recommend to those who have the
authority to implement them.
Include client responses in the report.
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Effective strategies contd
Make report outline before starting to
write
Keep your writing short.
Group similar findings together.
Place the most important findings at the
beginning of the report.
Use an executive summary of the findings
and recommendations.
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Effective strategies contd
Good audit report is like a bridge
between the auditor and audit client. Any
gap / defect in the report will not let your
findings to cross over to the audit clients
for their implementation & hence, no
value.
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VI. Internal Audit Report
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A. Executive Summary
Provides a high level overview of the audit
and provides a summary of the audit activity
Included are the Introduction, the Objective
and Scope, Observations and
Recommendations, Summary, and
Conclusion
The Executive Summary is submitted to the
Audit Committee and the Senior
Management.
The entire report (which includes the
executive summary) is provided to the
individual auditees.
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Executive Summary (Contd)
Introduction
The Introduction of the Executive
Summary will provide
a brief description of how the audit
relates to the annual audit plan
inherent risks identified
other pertinent information to ensure
the purpose of the audit
any other background information
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Executive Summary (Contd)
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Executive Summary (Contd)
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Executive Summary (Contd)
Summary
This section provides a summary of the
observations and recommendations
made
The goal of this section is to provide an
overview of the audit work
If specifics are required then the full audit
report can be referenced
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Executive Summary (Contd)
Conclusion
This section provides the conclusion
reached by the auditors
A opinion will be expressed with respect
to the observations.
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B.The Complete Internal Audit
Report
Background
Inherent Risks
Objective of Audit
Nature and Scope of the Audit
Methodology
Attributes Tested
Conclusion
Appendixes
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The Complete Internal Audit Report
(Contd)
Background
A very brief explanation as to the rationale for
the audit is provided in this section
Inherent Risks
This section addresses the inherent risks
involved in the area being audited
Objective of Audit
The objective of the audit should answer the
question Why was this department/area
audited?
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The Complete Internal Audit Report
(Contd)
Nature and Scope of the Audit
This section should answer the question
What was audited?
Methodology
This section describes the audit program
that was developed to conduct the
fieldwork
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The Complete Internal Audit Report
(Contd)
Attributes Tested
This section of the audit report will
discuss the individual issues or areas that
we decided to test.
A particular issue is analyzed and
captured the information in a set format
which includes observations and
recommendations as required
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The Complete Internal Audit Report
(Contd)
Name of the Attribute Tested
For each attribute tested an analysis that
covers the objective, criteria, risks,
observations, conclusion, causes,
recommendations, and managements
response shall be provided
Objective
Criteria
Risks
Observations
Conclusion
Causes
Recommendations
Management response
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The Complete Internal Audit Report
(Contd)
Conclusion
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The Complete Internal Audit Report
(Contd)
Appendixes
Planned Management Actions
This section is a compilation of all the
recommendations made in the audit
report, and includes all of the
management responses, who the
responsible person is for implementing
each recommendation and the time
frame
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The End!
Thank you very much!
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Sources of the Materials
Used/References
IPPF-IIA
Sawyers - The Practice of Modern Internal
Auditing by L. Sawyer
Internal Auditing: Assurance and Consulting
Services By F. Kurt (IIA Research Foundation)
Others
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