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Chapter 26

261

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Explain the role of internal auditors infinancial auditing.

Describe the auditing and reportingrequirements under Government AuditingStandards and the Single Audit Act.

Distinguish operational auditing from

financial auditing.

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rovide an overvie! of operational audits.

lan and perform an operational audit.

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Explain the role of internal auditors infinancial auditing.

26-4

1

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Internal auditing is an independent objectiveassurance and consulting activity designed

to add value and improve an organizationsoperations.Risk anagement!ontrols

"overnance #rocesses

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#rovide value t$roug$ improved operationale%%ectiveness &$ile per%orming traditional

responsibilities.

Revie&ing

managementin%ormation

'nsuringcompliance

(a%eguardingassets

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Integrity

Ethical

Principles

Objectivity

CompetencyConfidentiality

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Integrity

Rules

of

Conduct

Objectivity

CompetencyConfidentiality

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+$e internalauditor is responsibleto management

+$e externalauditor is responsibleto %inancial statement users

,ot$ must be competent objective use a similar met$odology and

consider risk and materiality

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Describe the auditing and reportingrequirements under Government Auditing

Standards and the Single Audit Act

26-/

2

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+$e primary source o% aut$oritative literature%or per%ormance o% government audits is

Government Auditing Standards&$ic$ is issued by t$e "01.

,ecause o% t$e color o% t$e cover it is usuallyre%erred to as t$e Yellow Book.

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+$e ello& ,ook standards are o%ten calledgenerally accepted government auditing

standards 3"0"0(.

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inancial 0uditing (tandards o% t$e ello& ,ook

aterialityand

signi%icance

!onsistent &it$ "00(7#rovide additional guidance8

#ualityControl

Reporting

!omplianceauditing

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+$e t$res$old %or re9uiring a single audit is :5/////.

$he %ingle &udit &ct and '() Circular &1!!contain re*uire+ents or the scope o the audi

!ompliance&it$ "0"0(

Internal Control-is

;egal!ompliance

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-eporting -e*uire+ents

261/

0n opinion on 8

(tatements

in accordance&it$ "00#

(c$edule o%

%ederal a&ards

0 report on 8

Internalcontrols

;egal!ompliance

indings and

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Distinguish operational auditing from financialauditing.

26-6

!

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26-)

+$e purpose o% operational auditing is todetermine t$e e%%ectiveness or e%%iciency

o% any part o% an organization

inancial &uditing e+phasies hetherhistorical inor+ation as correctly

recorded hile operational auditinge+phasies e3ectieness and e5ciency

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rovide an overvie! of operational audits.

26-*

4

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26-=

Effectivenessre%ers to accomplis$ingobjectives

Efficiencyis de%ined as reducing cost&it$out reducing e%%ectiveness

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Inefficiency Example

Acquisition of goods and

services is too costly

Raw materials are not

available when needed

A duplication of effortby employees eists

!ids for purchases of

materials are not required

An assembly line was shut

down for lac" of materials

Production and accounting"eep identical records

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Inefficiency

#or" is done that serves

no purpose

$here are too many

employees

Example

%endors& invoices and

receiving reports are filedwithout being used

Office wor" could be done

with one less assistant

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Reliability o% %inancial reporting

'%%iciency and e%%ectiveness o% operations

!ompliance &it$ applicable la&s and regulations

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unctional

1rganizational

(pecialassignments

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Internalauditors

"overnmentauditors

!#0 %irms

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+$e t&o most important 9ualities%or an operational auditor

!ompetence Independence

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lan and perform an operational audit.

26-26

/

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ore speci%ic criteria are usually desirablebe%ore starting an operational audit

(ources o% criteria include>?istorical per%ormance,enc$marking

'ngineered standards@iscussion and agreement

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#lanning 'videncegat$ering andevaluation

Reportingand

%ollo&-up(ta%%ing(cope!ontrols

'ig$t types

@ocumentation

(copeindingsRecommendations

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26 !0

!opyrig$t

All rights reserved. "o part of this publication ma# be reproduced$

stored in a retrieval s#stem$ or transmitted$ in an# form or b# an#

means$ electronic$ mechanical$ photocop#ing$ recording$ or

other!ise$ !ithout the prior !ritten permission of the publisher.

rinted in the %nited States of America.

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