BI as Internal Audit Tool
Transcript of BI as Internal Audit Tool
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Business Intelligence as IA Tool
By: R.S. Murali
Internal Audit Recruitment Review
By: Tim Sandwell
Issue No. 15, October 2010
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PricewaterhouseCoopers provides industryocusedassurance, tax and advisory services to build publictrust and enhance value or its clients and theirstakeholders. More than 154,000 people in 153countries across our network share their thinking,experience and solutions to develop resh perspectivesand practical advice.
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Established in the region or over 30 years,PricewaterhouseCoopers Middle East network covers15 countries and has over 2,000 people.
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Global expertise,local knowledge*
*connectedthinking
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2 October 2010 3 October 2010
4October2010
FinancialIntelligenceTraining
MembersMeetingUAE-IAAPastEvents
AtrainingprogramonFinancialIntelligencewasheldattheLe
MeredienDubaiandwaspresentedbyIyadMourtada,President
andLearningConsultant,OpenThinkingAcademy,USA.
Manysmartmanagersoftenmakebadfinancialdecisionsbecause
theydontfullyunderstandhowtoreadandanalyzefinancial
statements.Managersshouldbeabletodealwithfinancial
numbers,understandandconnectfinancialinformation,turn
financialinformationintofinancialknowledgeandrelyontheir
financialintelligencetomakewisefinancialdecisions.
Thisfinancialtrainingprogramwasgearedtowardshelpingmanagers
understandwhatthefinancialnumbersreallymeanandhowto
lookatthebigpicturewhentheymakefinancialdecisions.The
trainingalsodelvedintowhatwentwrongwithEnron,WorldCom
andTycoanddemonstratedtomanagerstheimportanceofrelying
ontheirintuitionandemotionsandnotjustthefinancialfactsin
frontofthem.
OnJune29thamembersmeetingwasheldattheLeMeredien
Dubai.Thehighlightofthiseventwastherecognitionofnew
CIAsandpresentationson`RecentTrendsandBestPracticesonBusinessIntegrityandGoodGovernancebyleadingadvisers
ControlRisksandSimmons&Simmons.UpdatesontheInstitutes
programsandactivitieswereprovidedbytheUAE-IAAPresident,
AbdulqaderObaidAli.Inaddition,therewasalsoaraffledraw
fortheluckyparticipantsintheCBOK2010GlobalInternalAudit
Survey.
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UAE-IAA Events
10October 2010
frommanyalternatives .So onceagain,
wecan havethes inglenumberengineers
alwayswant itsNPV butin this case,its
theleas tnegativeNPV.
Mostfixedassetsandotherprojectshave
alimitedusefullife. Allequipmenthas
afinitel ifebasedon bothdeter ioration
andobsolescence.Themost common
depreciation methods is s traig h t linedepreciation basedon acquis ition cos tl es s
salvage. Straightlinedepreciation isbased
on consumption ofafixedpercentageof
theequipmentcos t.Often,s traight linedepreciation isusedfor internalaccounting
reportsofprofit/lossandf orcalculating
NPV.
Incometaxratesvaryandmay requireinclus ion ofs tateaswellas federaltaxes .
Engineersmustbeconcernedwith life
cyclecos ts formaking importanteconomic
decis ions throughengineer ing actions .
WhatgoesintoLCC?
LCCincludeseverycostthatisappropr iate
andappropr iatenesschangeswitheachspecific casewhichis tailoredto fitthe
s ituation. LCCfollowsaprocess (Fabryck
1991AppendixA)asshown in Figure1.
Thes tepsare:
S t e p 1 - Identifywhathas to beanalyzed
andthetimeper i o d f o r t h e
projectlifes tudyalong withthe
appropr iatefinancialcr iter ia.
Step2-Focuson thetechnicalfeaturesby
6.Shareholderswant to increase
s tockholderwealthas theonlycr iter ia.
Managementis respons ibleforharmonizing
thesepotentialconflictsunderthebannerofoperati ng forthelowest long term
costofownership. LCCcan beusedasa
managementdecis ion toolforharmonizing
theneverendi ng conflictsbyfocus ing
on facts ,moneyandtime. Whyshouldengineersbeconcernedaboutcos tdetails
forLCC? Itis importantto helpengineers
think likeMBAsandactlikeengineers for
profitmaking enterpr ises .Its allaboutthemoney!
Economic calculationsarewelldefined
butthediscountrate is i mportant(US
Government2002). Accounting andfinanceorganisationssetinternaldis count
rates (whi choften change)to make
economic decis ionseasyforengineers .
C a s h f l o ws i n t o / o ut o f a b u s iness .Thediscounti ng methodsummarizes
transactionsoverthelifeoftheinves tment
in termsofpresentorfuturedollars .
Engineer ing alwayswantas imple,s ingle
value,cr iter iaforaproj ect theanswer
forLCCiscallednetpresentvalue(NPV).
NPV is thepresentvalueofproceedsminus
presentvalueofoutlays . Projectsandprocesseswiththegreates tNPV isusually
thewinner. Often for incrementalchanges
on aproje c t o r w ithin aplant,you lack
enoughdetails to arr iveatapos itiveNPV.
Thusmanyimprovementprojectsmustbeselectedon theleas tnegativeNPV values
Life Cycle Cost (LCC) Analys i s helps in
advocating reducing life cycle cos ts for
equipments in wide areas within allsectors
by showing show/why reliability and
maintainability must be included in upfrontdecis ions for s trategic and tactical is sues
of achieving the lowest long term cos t on
ownership. LCC concepts are resurgi ng
presently within global organisations ,
respons ible MNCs with Corporate SocialRespons ibility (CSR)s in place, including
worldwideGovernmentefforts to minimize
energy cos ts .
WHYUSELCC?
LCChelpschangeprovincialperspectives
forbus iness is sues ,withemphas ison
enhancing economic competitiveness ,by
working forthelowestlong termcostofownership,whichisnotan easyanswerto
obtain. Cons iderthesetypicalproblems
andconflictsobservedin mostcompanies :
1.ProjectEngineer ing wants to minimizecapitalcos tsas theonlycr iter ia;
2.MaintenanceEngineer i ng wants to
minimizerepairhoursas the onlycr iter ia;
3.Production wants to maximizeuptime
hoursas theonlycr iter ia;
4.ReliabilityEngineer ing wants to avoid
failuresas theonlycr iter ia;
5.Accounting wants to maximizeproject
netpresentvalueas theonlycr i ter ia,and;
ALi feCycleCostSummary
FINAL PART
By: JacobJobyVarghese
10
Life Cycle Cost Summary: Final PartBy: Jacob Joby Varghese
6October 2010
components :
SourceSystems:Thesearethehardcore
transactionbasedsys temswheredata
is capturedwhiletheorganisationdoes
itsbus iness .Thedataisgeneratedfrom
functionalareas likeaccounting,sales ,
production,marketing,humanresources ,
etc.Theseares toredintheorganisations
database.Thesourcesys temscouldbe
partofERPorres idi ngi ndi s tr ibuted
functionallywithvar iousdepartments
whousetheirownsoftware/database.
processes ;andforthispurposedependheavily
onthedatabaseoftheclientorganisation.
Is thedatabasealwayscongenialtotheuse
oftheInternalAuditteam?Is thedatabase
effectiveandefficientfortheevaluationof
ther isk,controlandgovernance?
Thispaperattempts to exploretheroleof
BI asan effectivetoolfor InternalAudit.
The Business Intelligence Systems
Components of BI Systems
TheBI sys temsareessentiallymadeofthree
Introduct ion
BusinessIntelligence (BI) isdefinedas
computer -basedtechniq u e s u s e d i n
spotting,digging-out,andanalyzi ng hard
bus iness suchassalesrevenuebyproducts
ordepartmentsorassociatedcos tsand
incomes .ObjectivesofaBI exerciseinclude
(1)unders tandin g a f irms internaland
externals trengthsandweaknesses ,(2)
unders tanding therelationshipbetween
differentdataforbetterdecis ion making,(3)
detection ofopportunities for innovation,
and(4) cos treduction andoptimal
deploymentofresources 2.Theobjecti ves
oftheBI s tatedherewouldsoundextremely
familiar for InternalAuditors (IA),whose
objectivesareinlinewiththese,exceptthat
theyadditionallyfocuson internalcontrols .
Doesthismean thattheBI is atoolfor IA?
Thispaperattempts to examinethis .
TheIns ti tuteofInternal Auditors (IIA)
defines Internalauditingisanindependent,
objectiveassuranceandconsultingactivity
des ignedtoaddval ueandimprovean
organisationsoperations .I t h e l p s a n
organisationaccomplishitsobjectives ,by
br inginginasys tematic,dis ciplinedapproach
toevaluateandimprovetheeffectivenessof
r iskmanagement,controlandgovernance
processes 3 .Theinternalauditmakesuseof
dataoftheclientorganisationandinorder
toevaluateandimprovetheeffectivenessof
r iskmanagement,controlandgovernance
1.Daven p ort,Th omas, Jan u ary2006,HarvardBu sin essRevi ew2.Bu si n essDicti on ary.com.Retri eved02 Sep tember2010
3.h ttp ://www.th eii a.org/gu idan ce/stan dard s-an d -gu i dan ce/ip pf/defin i tion -o f-i n tern al -au d i tin g/Retrievedon 02Sep tember20104.Howson ,Cin d i ,2007, Su ccessfu lBu sin essIn tel l igen ce:Secretsto Mak in gBIaKi ll erAp p ,McGraw-Hil l
Leadingorganisat ions are invest ing in managing informat i on and developing predict ive insights to drive sustainable businessresults.These companies have become masters inPerformance Management - going beyond mereusersofbusinessintelligence
tobecome the Intelligent Enterprises. 1
BI as IA Tool
By: R.S.Murali
ComponentsofBIArchitecture4
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Business Intelligence as IA Tool
By: R.S. Murali
Audit Week- By: Raza Abdulla
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Audit WeekBy: Raza Abdulla
18October 2010
abalanceofemployers thatareintendi ng
to recruit.
However,forallthesupposedlysophis ticated
regulatoryregimesandallthesums invested
incorporategovernanceand internal
auditing,thecreditcr is is s tillhappened.This
hastobeseenasafailure.Governmentsand
regulatorsaroundtheworldhaveresponded
tothis failureandtherehavebeenanynumber
ofinitiatives .BaselIII,theoverhaulofbank
capitalandliquidi tys tandards ,isperhaps
themosthighprofileandfarreachingof
theco-ordinatedresponses . Incrementally,
regulatorsarelookingtomakethefinancial
sys temlessr isky.
Iti sequallyclear,perhapsasaresultof
regulatorypressure,thats incethestartof2010 thefinancialsectorin otherregions
oftheworldhaverespondedbyinvesti ng
theymostoften havetheimplicitsupport
ofhighlysolventsovereign governments ,
marketsarebetterableto copewithlosses
ratherthan uncertainty.In this respect,
t h e lack ofadequatelydevelopedsystems
ofcorporategovernanceand alegal
infras tructureisnothelping theregion.
Recruitmentis a f o r m o f i n v e s t me n t .
Companies investandrecruitwhen theyfeel
confident.Gi ven thateffectivecorporate
governancewouldimproveconfidence,it
isperhapseasyto makeacaseforbuilding
on theinvestmentin governancethatwas
apparentbeforethefi nancialcr is is . The
sovereign s tates thatmakeupthe GCC
havetheopportunityto do so.Economic
growthis forecastto acceleratefurtherin
2011 andsurveyevidenceisemerging thatsuggestsgeneralrecruitmentpatternsare
in theprocessofimproving.Thereisnow
Thebackgroundto thefinancialcr is iswas
in ourview reasonablyeasyto explain. It
wascausedbycheapmoneyandtoo much
debt.Theconsequencewas increasedasset
priceswhichsupportedmoredebt,therealr isksofwhichwerehidden byfinancial
complexityand,in thecaseoftheGCC,
opaqueownerships tructures .
If anyone thought the GCC might be
immune when the financial cr is is s truck,
Dubais overheated property market
demonstrated it was not. However, unlike
Europe, where pr ivate debt default hasbeen replaced by the threat of sovereign
debt default, there is little such concern
within the GCC. It is therefore surpris ing,
on the back of both expans i onary fis cal
policies and anticipated economic growthof 4% in 2010, how lacklus tre the recovery
feels . Untilrecently it was clear that outs ide
of the public sector, unlike other regions of
the world, the recovery had yet to reachthe corporate governance recruitment
market.
Perhapstherelati vetransparencyof
Western economies is the difference.
Althoughthecreditrelatedlosses inEurope
andtheUnitedStatesweregreater,they
werealso morereadilyidentifiedand
quantified.Identifying andreporting lossesprovidecertaintyand allows informed
investmentdecis ionsto bemade.Within
theGCC,uncertaintycomes froml ower
levelsoftransparencyandquestionsabout
thegovernanceofs tateownedentitiesand
familyownedcompanieswhichformthe
majorpartoftheregionseconomy.Whils t
BarclaySimpsonInternal AuditRecruitmentReview
By: T imSandwell
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Internal Audit Recruitment Review
By: Tim Sandwell
20Oc tober 2010
By: VishalThakkar
AbouttheAuthor:
VishalThakkar isaqualified Chartered
Accountantand Certified InternalAuditor.He iscurrentlyworkingwith
Group InternalAuditdepartmentofPetrofacand canbe contacted at
Knowledge UpdateNew on the Horizon: Leases forReal Estate companiesIn Augus t2010 theInternationalAccounting StandardsBoardand
theUSFinancialAccounting StandardsBoardpublishedajoint
exposuredrafton leases ,whichwillhaves ignificantimplications
on leaseaccounting in thereales tatesector ifimplementedin its
currentform.As ignificantoverhaulin leaseaccounting s tandards
hasbeen widelyanticipatedforsometimenow.In factitisover10
years s incethecoreproposals in thisexposuredraft(EDorLeases
ED)werefirs tmade.
Asexpected,theproposeds tandard,ifadoptedin its currentform,
willmakes ignificantchanges tothecurrentapproachto accounting
for leases .In summary,itremoves thedi fferencesbetween
operating andfinanceleasesandbr ingsallleaseobligationsonto
theles sees s tatementoffinancialpos itionasafinancialliability.For
reales tateoccupiers this is s ignificant.In thepas t,themajor ityof
propertyleaseswereclas sifiedasoperating leasesandsoproperty
rentalsweretreatedasan operatingexpenseintheles sees financial
s tatements .Undertheseproposals les seeswouldbeobligedto
br ing thenetpresentvalueoftheir futureleaseobligationsonto
thes tatementoffinancialpos ition.
http://www.kpmg.com/Global/en/Is suesAndIns ights/
ArticlesPublications/Pages/ NOTH-Leases -for -Real-
Es tateCompanies .aspx
Arab Media Outlook: Collaborating
for GrowthThisgroundbreaking report,releasedbytheDubaiPres sClubin
conjunction withPr icewaterhouseCoopers ,reviewsthecurrent
s tateofArabmediaacros s twelveArabi c-speaking countr ies .
SupportedbyDubaiMediaCity,DubaiStudio CityandInternational
MediaProductionZone,theArabOutlook focuseson theimpact
oftheglobalmediatrendson theArabMediaandpredicts the
courseofevents formanyaspectsofthei ndus tryoverthenext
fiveyears .
Developments in digitalmediaandtheemergenceofbroadband
acces sandTVdelivereddirectlytomobiledevicespresentexciting
growthopportunities formediacompaniesacros s theArabic-
speaking wor ld.Yetin orderto benefitfromtheseopportunities ,
certain factorsmus tbeaddres sed:therelativelylimitedavailability
ofaffordablebroadbandacces sacros smuchoftheregion;and
thelack ofreliableaudienceandreadershipfigures :Conclus ions
outlinedin this reportenableus to takean accurateview ofthe
Arabmediaindus trybothin quantitativeandqualitativeterms .
http://www.pwc.com/m1/en/publi cations/Arab_media_
outlook.jhtml
Guide to Using InternationalStandards on Auditing in the
Audits of Small and Medium-SizedEntitiesThesecondedition ofthisGuidewascommis s ionedbythe
IFACSmallandMedi umPractices (SMP)Commi tteeto as s is t
practitionerson theauditofsmallandmedium-s izedentities
(SMEs),andto promotecons is tentapplication oftheInternational
Standardson Auditing (ISAs ).WhiledevelopedbytheCanadian
Ins tituteofCharteredAccountants (theCICA),theGuideis the
fullrespons ibilityoftheIFACSMP Committee.TheInternational
Auditing andAssuranceStandardsBoard(IAASB)s taffandaglobal
advisorypanel,withmembersdrawn fromabroadcros s -section
ofIFACmemberbodies ,haveas s is tedin reviewing theGuide.The
Guideprovidesnon-author itativeguidanceon applying ISAs .Itis
notto beusedasasubs tituteforreading theISAs ,butrather
asasupplementintendedto helppractitionersunders tandand
cons is tentlyimplementtheses tandardson SMEaudits .TheGuide
doesnotaddres s allaspectsofISAsandshouldnotbeusedfor
thepurposesofdetermining ordemons trating compliancewith
theISAs .
TheGuideis intendedto explain andillus trateso as to developa
deeperunders tanding ofan auditconductedin compliancewith
ISAs .Itoffersapracticalhow-toauditapproachthatpractitioners
mayusewhen undertaking ar isk-basedauditofan SME.Ultimately
itshouldhelppractitionersconducthigh-quality,cos t-effectiveSME
audits ,andin so doing,helpthembetterservethepublic interes t.It
is anticipatedthattheGuidewillbeusedbymemberbodies ,audit
firmsandothers ,asabas is foreducating andtraining profes s ional
accountantsands tudents .IFACmemberbodiesandfirmsmayuse
theGuide,eitheras iti sortailoredto suit t h e irown needsand
jur isdiction.Itprovidesabas is fromwhichmemberbodiesand
otherscan developder ivativeproducts suchas training mater ials ,
auditsoftware,checklis ts andforms .
http://web.i fac.org/media/publications/5/guide-to-us ing-
internationa-1/guide-to-us ing-internationa-1.pdf
20
Knowledge UpdateBy: Vishal Thakkar
Working together on theright trackGreetings!
I would like to take this opportunity to extend greetings to all fellow members of the
UAE-IAA and express my gratification at the growing participation in the various events
we have. What is especially encouraging is the fact that our recent efforts in advocating
regular meetings for our members has drawn a good response and so has the interestbeen kindled in the introduction of selective training courses.
The UAE-IAA remains committed to utilize its resources to further its mission and
responsibility to its members. This however needs to be enhanced with full cooperation
and active participation from its members and officers. At this point, I would like to
express my gratitude to volunteers who continue to unselfishly contribute their personal
time and talent to the worthy projects and programs of the Institute.
As we move towards the end of the calendar year, I would seek your support to the
programs and activities of the UAE-IAA through the following:
l Increased attendance of Members Meetings which are free of charge and inclusive
of knowledge-sharing sessions;
l Enlisting as a volunteer to strengthen the UAE-IAA Secretariats force towards
supporting membership and professional development activities;
l Participation in scheduled training courses;
l Knowledge-sharing and contribution to the UAE-IAA newsletter.
The need of the hour is for all of us (now over 300 strong) to come together and put
our best foot forward for the common good of the Institute. We would welcome your
feedback and recommendations for necessary action of the Board. This will contribute
further in realizing the goals of the UAE-IAA Chapter.
Abdulqader Obaid Ali
President
UAE-IAA
MessagefromthePresident
Contents
October 2010
Board of GovernorsUAE-IAA ChapterPresident:Abdulqader Obaid [email protected]
Board Members:
Abdulrahman Al [email protected]
Abdulrahman Ba [email protected]
Adnan [email protected]
Ahmad [email protected]
Ahmed Al [email protected]
Amir [email protected]
Badr Mohammed [email protected]
Karem [email protected]
Khalid [email protected]
Laila Al [email protected]
Mohamed Shehab Al [email protected]
Raza [email protected]
Newsletter Committee:
Vishal ThakkarPetrofac
Farah ArajNational Holding
Mahmoud GhazzaouiDeloitte & Touche, (M.E)
Meenakshi RazdanEmirates Airlines
Editor:Manjula Ramakrishnan
UAE-IAA Newsletter welcomes editorial
contributions and feedback from readers.
Write in to [email protected]
Afiated to The Institute of Internal Auditors 247 Maitland Avenue Altamonte Springs,Florida 32701-4201 USA +1-407-937-1100 Fax +1-407-937-1101 www.theiia.org Copyright 2008
Disclaimer: It is hereby notied that all opinions, facts or views expressed in this magazine are those ofthe author and need not necessarily represent the views of UAE-IAA. The advertising of events, courses,
products and services in this publication does not imply that they have UAE-IAA endorsement.
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4 October 2010 5 October 2010
Financial Intelligence Training
Financial Intelligence Training (contd)
MetricStream CEO Addresses UAE-IIA
Members on The Changing Face of
Internal Audit
Members Meeting
UAE-IAA Past Events
A training program on Financial Intelligence was held at the Le
Meredien Dubai and was presented by Iyad Mourtada, President
and Learning Consultant, Open Thinking Academy, USA.
Many smart managers often make bad financial decisions because
they dont fully understand how to read and analyze financial
statements. Managers should be able to deal with financial
numbers, understand and connect financial information, turn
financial information into financial knowledge and rely on their
financial intelligence to make wise f inancial decisions.
This financial training program was geared towards helping managers
understand what the financial numbers really mean and how to
look at the big picture when they make financial decisions. The
training also delved into what went wrong with Enron, WorldCom
and Tyco and demonstrated to managers the importance of relying
on their intuition and emotions and not just the financial facts in
front of them.
Shellye Archambeau, CEO of MetricStream
Inc., addressed the UAE chapter of the
Institute of Internal Auditors (IIA) in Abu
Dhabi on Sunday, September 19, 2010. The
event saw Ms Archambeau providing insights
on the evolving role of Internal Audit and
how internal auditors must redefine their
role in this fast-changing business landscape
to drive value by expanding their functions to
risk management, compliance management,
fraud prevention and collaboration with key
stakeholder. MetricStream provides a range
of world-class Audit management solutions for
global corporations to help internal auditors
confidently meet these new imperatives and
challenges.
On June 29th a members meeting was held at the Le Meredien
Dubai. The highlight of this event was the recognition of new
CIAs and presentations on `Recent Trends and Best Practices
on Business Integrity and Good Governance by leading advisers
Control Risks and Simmons & Simmons. Updates on the Institutes
programs and activities were provided by the UAE-IAA President,
Abdulqader Obaid Ali. In addition, there was also a raffle draw
for the lucky participants in the CBOK 2010 Global Internal Audit
Survey.
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6 October 2010 7 October 2010
components:
Source Systems:These are the hardcore
transaction based systems where data
is captured while the organisation does
its business. The data is generated from
functional areas like accounting, sales,
production, marketing, human resources,
etc. These are stored in the organisations
database. The source systems could be
part of ERP or residing in distributed
functionally with various departments
who use their own sof tware/database.
purpose depend heavily on the database of
the client organisation. Is the database always
congenial to the use of the Internal Audit
team? Is the database effective and efficient
for the evaluation of the risk, control and
governance?
This paper attempts to explore the role of
BI as an effective tool for Internal Audit.
The Business Intelligence Systems
Components of BI Systems
The BI systems are essentially made of three
Introduction
Business Intelligence (BI) is defined as
computer-based techniques used in
spotting, digging-out and analyzing hard
business such as sales revenue by products
or departments or associated costs and
incomes. Objectives of a BI exercise include
(1) understanding a firms internal and
external strengths and weaknesses, (2)
understanding the relationship between
different data for better decision making, (3)
detection of opportunities for innovation,
and (4) cost reduction and optimal
deployment of resources2. The objectives
of the BI stated here would sound extremely
familiar for Internal Auditors (IA), whose
objectives are in line with these, except that
they additionally focus on internal controls.
Does this mean that the BI is a tool for IA?
This paper attempts to examine this.
The Institute of Internal Auditors (IIA) defines
Internal auditing is an independent, objective
assurance and consulting activity designed
to add value and improve an organisations
operations. It helps an organisation accomplish
its objectives, by bringing in a systematic,
disciplined approach to evaluate and improve
the effectiveness of risk management, control
and governance processes3. The internal audit
makes use of data of the client organisation
and in order to evaluate and improve the
effectiveness of risk management, control
and governance processes; and for this
1. Davenport, Thomas, January 2006, Harvard Business Review2. BusinessDictionary.com. Retrieved 02 September 20103. http://www.theiia.org/guidance/standards-and-guidance/ippf/definition-of-internal-auditing/Retrieved on 02 September 20104. Howson, Cindi,2007, Successful Business Intelligence: Secrets to Making BI a Killer App, McGraw-Hill
5. IPPF International Professional Practices Framework of the Institute of Internal Auditors
Leading organisations are investing in managing information and developing predictive insights to drive sustainable business
results. These companies have become masters in Performance Management - going beyond mere users of business intelligence
to become the Intelligent Enterprises. 1
be achieved if these gaps are properly
addressed.
BI Tools and Internal Audit
BI Tools
Data warehousing, online analytical
processing and data mining are some of
the tools in the IT application to large scale
processing and analysis of data. These tools
are extremely useful for an Internal Audit
professional. Very effective and efficientinternal audit can be done using these BI
tools. Some of the essential details in this
regard are discussed.
Data Warehousing
Data warehouse is a repository of
subjectively selected and adapted
operational data, which can successfully
answer any ad hoc, complex, statistical
or analytical queries. Basics of data
warehousing design and management are:
Datawarehouse architectures: the
way the data are related and a rranged.
The understanding of this will enable
the IA get total grip of transaction
processing.
Datamartsanddatastores: These
are sub-sets of the data warehouse.
Since the Internal Audit requirements
are very specific and may not be as per
operational requirements, specific data
marts could be built for the purpose of
Internal Audit requirements.
Data structures and data f low:
An understanding of this by the IA
will make the audit trail easy and
evaluation of control systems will be
very efficient.
Dimensional modeling: This can be
used for audit in depth.
Benchmarking of business
performance: This is often done to
make comparison of performance
between organisations or within
divisions/units within an organisation.
Dashboards: These are final
representation of the KPI, generally in
a visually attractive form in order to
support decision making.
Decisionsupportsystems: Any othersupportive decision support reports
are also generated depending on the
requirements.
Thus BI systems help the users generate
reports and KPI as per their requirements.
However, the requirements have to be
planned properly and the relationships
between the data have to be defined
properly.
BI gaps for IA
An Internal Auditor, among other
functions, looks at transactions which are
recorded in the source systems. The data
warehouse that is created as a sub-set
of the source systems database is based
generally on the reporting requirements
of the Management and Executives. This is
where the requirements of IA have to be
taken care. In most of the data warehouses
this requirement is not taken care of and
the IA has to use his tools and techniques
from outside the system. In fact, it may
be necessary that while constructing a
data warehouse, the Internal Auditor
be consulted. The BI tools for query and
reporting or for analysis and alerting are
built with the operations in mind and
not control in view. Here again the IAs
requirements are generally not considered.
The independence and objectivity as
contemplated in the Attribute Standard
1100 as contemplated by IPPF5 can
Data Warehouse: This is another
database specifically created taking
into account the decision or reporting
requirements. For every organisation,
an exclusive data warehouse is created.
This warehouse depends upon both the
software and the user requirements.
The objective of this data warehouse
is to enable specifically required and
designed reports for the need of
users.
BI Tools: These are the slicing and dicing
tools that generate tailor-made report
and analysis. The BI tools make use of
data mining techniques and modeling
software in order to understand the
data behaviour and relationships.
WorkingofBIsystems
There are several ways to look at the
components of a BI system. The following
one is a simple step-by-step approach to
understanding how a BI system is built up
and what it does.
Data warehouse development
and administration: Based on the
requirements of the Management
reporting and the data base architecture
of the existing functional systems,
specific data warehouse is developed.
Data mining: The information
requirements dictate the way the data
are to be mined.
Data queries and report writing:
Queries are written and stored in the
data warehouse and this populates the
report structure on a periodic basis.
Dataanalyticsandsimulations: This
is another aspect of the data mining.
Predictive analysis is done based on
requirements and situation.
BI as IA ToolBy: R.S.Murali
Components of BI Architecture4
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Up, Roll-up, Pivot. Data mining supports in
addressing Risk Management (2120) and
Control of the Performance Standards
(2130).
Business Intelligence as a concept and
practice has come to stay. Increasingly
organisations are using BI along with ERP
or distributed computing in order to make
their reporting efficient and effective. The IA
who constantly views the organisational data
from control and compliance perspectivesrequires making use of appropriate
technology to complement the Management
of client organisations in upholding the
functions of IA. The Continuing Professional
Development (1230) and Quality Assurance
and Improvement Programme of the
Attribute Standards (1330) can be fully
addressed by providing periodic updates
to the Internal Auditors in some of the key
areas. Hence, there is strong case today for
the IA to build skills to get the best out of BI
systems, by addressing the following:
Knowledge of database systems and
data warehousing technologies
Abil ity to manage database system
integration, implementation and testing
Abilityto managerelationaldatabases
and create complex reports
Knowledge and ability to implement
data and information policies, security
requirements and government
regulations.
Rot ation to new dim ensional
comparisons in the viewing area
All the above features help IA go into
depths of the transaction data, analyzing
them in the way required and hence from
establishing of audit trail the IA will be
able to undertake benchmark data against
periods and perform inter and intra firm
analyses.
Data MiningData mining: the extraction of predictive
information from large databases.
Data trend, connection and behavior
pattern analysis
Dataquality
Dataminingtools
Predictiveandbusinessanalytics
Descriptiveanddecisionmodels
Statisticaltechniquesandalgorithms
The data mining capability is yet to be
completely used by the IA community. The
data mining becomes extremely important
when handling large amount of data. Some
of the tools available help in unearthing
even remote relationship between variables.Some of the approaches in this regard are
the use of: On-Line Analytical Processing
(OLAP), Multidimensional/ hyper cubes,
OLAP operations: Slice, Dice, Drill Down/
Extract,clean,conformanddeliver:
These are excellent methods with which
analysis of the data can be made as per
the requirements of the IA. The IA will
be in a position to identify any wild or
non-conforming transactions.
Server management too ls to
package,backupand restore: This
gives the IA the insight into DR or BCP
routines.
Databaseserveractivitymonitoring
and performance optimization:
Complete log of access and authority
digression, intrusion, etc. can be assessed
by IA.
OLAP
On-Line Analytical Processing (OLAP) is
a category of software technology that
enables analysts, managers and executives
to gain insight into data through fast,
consistent, interactive access to a wide
variety of possible views of information
that has been transformed from raw data
to reflect the real dimensionality of the
enterprise as understood by the user.
OLAP functionality is characterized by
dynamic multi-dimensional analysis of
consolidated enterprise data supporting
end user analytical and navigational activities
including:
Calculationsandmodelingappliedacross
dimensions, through hierarchies and/or
across members
Trend analysis over sequential time
periods
Slicingsubsetsforon-screenviewing
Dri ll -down t o deepe r l ev el s o f
consolidation
Reach-throughtounderlyingdetaildata
About the Author:
R.S.Murali is the Managing Director & Principal Consultant of NCR
Consultants Limited (www.ncrcl.com). He is a qualified Chartered
Accountant, Cost Accountant and Company Secretary. He is an
alumnus of University of Manchester, UK. He is also a Certified
Management Consultant CMC by ICMCI, USA. He has over
25 years of consulting, training and research experience and has
drafted four Accounting Standards for local governments. He can
be contacted on [email protected]
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from many alternatives. So once again,
we can have the single number engineersalways want its NPV but in this case, itsthe least negative NPV.
Most fixed assets and other projects havea limited useful life. All equipment has
a finite life based on both deteriorationand obsolescence. The most commondepreciation methods is straight line
depreciation based on acquisition cost lesssalvage. Straight line depreciation is basedon consumption of a fixed percentage of
the equipment cost. Often, straight linedepreciation is used for internal accountingreports of profit/loss and for calculating
NPV.
Income tax rates vary and may requireinclusion of state as well as federal taxes.
Engineers must be concerned with life
cycle costs for making important economicdecisions through engineering actions.
What goes into LCC?
LCC includes every cost that is appropriate
and appropriateness changes with eachspecific case which is tailored to fit thesituation. LCC follows a process (Fabryck
1991Appendix A) as shown in Figure 1.The steps are:
Step 1: Identify what has to be analyzedand the time period for the
project life study along with theappropriate financial criteria.
Step 2: Focus on the technical features by
6. Shareholders want to increase
stockholder wealth as the only criteria.
Management is responsible for harmonizing
these potential conflicts under the bannerof operating for the lowest long termcost of ownership. LCC can be used as a
management decision tool for harmonizingthe never ending conflicts by focusingon facts, money and time. Why should
engineers be concerned about cost detailsfor LCC? It is important to help engineersthink like MBAs and act like engineers for
profit making enterprises. Its all about themoney!
Economic calculations are well definedbut the discount rate is important (US
Government 2002). Accounting andfinance organisations set internal discountrates (which often change) to make
economic decisions easy for engineers.
Cash flows into/out of a business.
The discounting method summarizestransactions over the life of the investmentin terms of present or future dollars.
Engineering always want a simple, singlevalue, criteria for a project the answer
for LCC is called net present value (NPV).NPV is the present value of proceeds minuspresent value of outlays. Projects and
processes with the greatest NPV is usuallythe winner. Often for incremental changes
on a project or within a plant, you lackenough details to arrive at a positive NPV.Thus many improvement projects must be
selected on the least negative NPV values
Life Cycle Cost (LCC) Analysis helps in
advocating reducing life cycle costs for
equipments in wide areas within all sectors
by showing show/why reliability and
maintainability must be included in upfront
decisions for strategic and tactical issues
of achieving the lowest long term cost on
ownership. LCC concepts are resurging
presently within global organisations,
responsible MNCs with Corporate Social
Responsibility (CSR)s in place, including
worldwide Government efforts to minimize
energy costs.
Why use LCC?
LCC helps change provincial perspectives
for business issues, with emphasis onenhancing economic competitiveness, by
working for the lowest long term cost ofownership, which is not an easy answer toobtain. Consider these typical problems
and conflicts observed in most companies:
1. Project Engineering wants to minimize
capital costs as the only criteria;
2. Maintenance Engineering wants to
minimize repair hours as the onlycriteria;
3. Production wants to maximize uptimehours as the only criteria;
4. Reliability Engineering wants to avoidfailures as the only criteria;
5. Accounting wants to maximize projectnet present value as the only criteria,
and;
iterative fashion.
Step 11: Select the preferred course of
action and plan to defend the
decisions with graphics.
LCC combines acquisition and sustaining
costs. Acquisition and sustaining costs are
found by gathering the correct inputs,
building the input database, evaluating the
LCC and conducting sensitivity analysis to
identify cost drivers.
Acquisition costs have branches for the cost
tree shown in Figure 2 as a memory jogger.
Sustaining costs have branches for the tree
as shown in Figure 3 which is also a memory
jogger.
LCC requires facts driven by data and
analysis of data from arithmetical analysis
to more complicated statistical analysis.Follow guidelines for each step listed in
Figure 1 to work-out a typical engineering
problem (remember, a single right or
wrong method/solution does not exist -
many methods and routes can be used to
find LCC). If you disagree with the cost or
life data, substitute your hypothesis values
determined by local operating conditions,
local costs, and local grades of equipment.
Consider the following LCC example.
Step 1: Define the problem. A solo pump
is operating without an online spare. At
pump failure, the process shuts down andfinancial losses are incurred as each hour of
down time results in a gross margin loss of
US$4,000/hour of outage. Find an effective
LCC alternative as the plant has an estimated
10 years of remaining life and is expected to
be sold-out during this interval.
Step 2: Alternatives and acquisitions/
sustaining costs. Consider three obvious
alternatives for LCC (other alternatives
exist for solving this problem, however, the
list is pared for brevity):
1. Base case - do nothing. Continue solo
ANSI pump operations with a 100
horsepower, 1750 RPM, 250 psi, 500
Step 7: For key issues prepare breakeven
charts to simplify the details intotime and money.
Step 8: Sort the big cost items into aPareto distribution to reconsider
further study.
Step 9: Test alternatives for high cost
items such as what happens ifmaintenance cost is 10% thanplanned, etc.
Step 10: Study uncertainty/risk of errorsor/alternatives for high cost items
as a sanity check and providefeedback to the LCC studies in
way of the economic consequences
to look for alternative solutions.
Step 3: Develop the cost details by year
considering memory joggers forcost structures.
Step 4: Select the appropriate costmodel, simple discrete, simple
with some variability for repairsand replacements, complex withrandom variations, etc. required
by project complexity.
Step 5: Acquire the cost details.
Step 6: Assemble the yearly cost profiles.
A Life Cycle Cost Summary
FINAL PART
By: Jacob Joby Varghese
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Of course the detection/switching device is
very important for calculating overall systemreliability and for this case the reliability isassumed to be 100%. Also for simplicity,
the reliability of the system is calculatedas if the redundant pumps are operatingin parallel. Again, cost details are listed in
(Barringer 1996).
Alternative 3: Replace Solo ANSI pump
With Solo API Pump: Use the followingdetails from plant experience - again, thecost details are listed in (Barringer 1996).
Step 6: Make cost profiles for each year ofstudy. This step will take into account the
annualized charges plus the lumped chargesat the front and rear end of the project as
shown in Table 1. Based on these alternativesin Table 1, adding the ANSI pump in parallellooks more attractive based on the NPV
at the 12% discount rate using straight
line depreciation and planning for a 38%tax rate. No revenue stream is included in
these calculations so the case with the leastnegative NPV will be the most attractivecase. Remember each company will have its
favorite discount rate, depreciation scheduleand method for making capital decisions.That means local conditions may prevail
in making decisions.
Step 7: Make break-even charts for
alternatives. Breakeven charts are usefultools for showing effects of f ixed and variable
costs. Results for the three alternatives areshown in Figure 4 for a quick grasp of howthe breakeven points compare to the base
case. In Figure 4, net present values are
gpm, 70% hydraulic efficiency, pumping
fluid with a specific gravity of 1.
2. Add a new, second ANSI pump in parallel
(literally in redundant standby) whichcan be started immediately withoutthe loss of production upon failure of
the running pump. Alternate runningof the parallel unit every other week toavoid typical failures incurred by non-
operating equipment. The capital costsfor the second pump is $8,000 plus$3,000 for check/isolation valves, plus
$2,500 for installation.
3. Remove the existing solo ANSI pump andreplace it with a new solo API pump withthe same performance as for the ANSI
model. The API pump cost $18,000 plus$3,500 for installation and the installationwill incur a four hour loss of production
for connecting the new pump.
Step 3: Prepare cost breakdown structure/
tree. Refer to Figures 2 and 3 for memoryjoggers of the cost buckets to consider forthree cases.
Alternative 1: In the do nothing case, thecost breakdown structure will incur cost in
these categories: 1) For the solo pump, theacquisition costs are sunk and acquisitioncosts need not be considered, 2) Sustaining
costs must be accumulated for labor,materials and overhead, replacement/
renewal costs + transportation, energycosts + facilities costs, support + supplymaintenance costs, operations costs,
ongoing training costs, and for the end of
life conditions disposal permits + wrecking/
disposal + remediation + asset write-off/recovery costs + miscellaneous green/clean costs will be incurred. This case is
Accountings default condition and the caseengineering usually wants to ignore.
Alternative 2: For the addition of adual ANSI pump, the cost breakdownstructure will incur acquisition costs
for program management, engineeringdesign, engineering data, facilities andconstruction costs. All of the sustaining
costs for the solo case will be incurred plussystem/equipment modification costs andengineering documentation costs.
Alternative 3: For the replacement of the
ANSI solo pump with an API solo pumpwe will incur both acquisition and sustainingcosts which will be different (but similar) to
the dual ANSI case.
Step 4: Choose analytical cost model. The
model used for this case is explained in anengineering spreadsheet. The spreadsheetmerges cost details and failure details to
prepare the NPV calculations. Failure costsare prorated into each year since the specifictime for failure, because of chance events,
is not known. The same spreadsheet willbe used with more details when statisticaluncertainty is added in a section which
follows. LCC spreadsheets are available onthe Internet (Barringer 2002).
Step 5: Gather cost estimates and costmodels. This is the complicated section where
all the details are assembled. Of course the
more thorough the collection process, the
better the LCC model. For this summary,the details have been shortened with justenough information described to show the
trends. Use of MTBFs and expected failuresare based on the exponential distributionwhich is an acceptable first-cut for costs, but
this technique is not an accurate predictor offailures for wear-out phenomena expectedfor many of these components. An improved
accuracy method uses Weibull distributionsfor failures (Abernethy 2000). Assumeall the equipment follows the exponential
distribution for reliability with constantfailure rates. Note the reciprocal of failurerate is the mean time to failure. Since failure
rates are constant, use one year time bucketsto collect the cost of failures per year as
the literal failure date is unknown. Use thefollowing assumptions based on an accountingprinciple that costs will follow activity - in this
case it will follow failure activity.
Alternative 1: Do nothing case - the
datum: Use the following details fromplant experience. See (Barringer 1996) fordetailed cost at http://www.barringer1.
com/Papers.htm: select paper #7. Costdetails are not provided here because ofspace limitations.
Alternative 2: Add redundant ANSIpump: Use the following details from plant
experience. This case results in pumpsinstalled in parallel but operated as a
standby redundant system as the redundantcomponents are not energized but areliterally standing by, waiting to be used when
failure of the operating system is detected.
Figure4:BreakevenChart
Figure 2: Acquisition Cost Tree Figure 3: Sustaining Cost Tree
Table 1
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Figure 8: Pump Reliability vs Pump Curve
data must be identified.
LCC is simply a way-stop on the never ending
journey for reducing costs. LCC is clearly nota destination. LCC provides the tools to
engineer maintenance budgets, ownershipcosts, and present decision making scenariosin a financial perspective to achieve the
lowest long term cost of ownership.
engineers are the most important link indevising cost effective plants and naturally
the burden of LCC falls on their shoulders.But design engineers cannot perform aneffective analysis unless they have reasonable
failure data from operations. Thus theneed for plant and industry databases offailure characteristics. Remember, to obtain
good failure data, both failure and success
shown on the Y-axis to combine cost of
money with time and show how the effectsof expenditures and cost reductionsplay together. Of course the issue is to
choose alternatives which payback quicklyand payback big returns with favorableNPVs which for this case favour the dual
ANSI pumps.
Step 8: Pareto charts of vital few cost
contributors. The purpose of Pareto charts
is to identify the vital few cost contributors
so the details can be itemized forsensitivity analysis and ignore the trivial
many issues. Pareto rules say that 10 to
20% of the elements of a cost analysis will
identify 60% to 80% of the total cost
these high cost items are the vital few
items of concern and need to be carefully
considered. The cost elements for the
also ANSI pump are shown in Figure 5
with the high cost of lost gross margins
more than twice the cost of the next item.
Compare the absolute magnitude of the
costs with the cost elements for Figures
5, 6 and 7. When redundant ANSI Pumps
are installed, the Pareto chart looks
substantially different as shown in Figure 6
where electrical power becomes the most
significant cost item.
Step 9: Prepare sensitivity analysis of high
costs and reasons for high cost. Sensitivityanalysis allows study of key parameters onLCC. In Table 1 the analysis begins with
mean time between failures which drives
the failure rate. Since all of the componentsare in series, the failure rates for the
exponential distribution can be added toobtain an overall failure rate for the system.Figure 5 shows the key for controlling cost
is to avoid the downtime which results inlost gross margin caused by unreliability. Ifan inferior operating philosophy that all
pumps cavitate then reliability withinthe plant will be low as equipment willbe killed before it reaches its inherent life
span. Figure 8 (Barringer 2003) illustratesthe sensitivity of pump reliability to pump
curves and other well-known problems. Theshape of the reliability curve is dependentupon many pump features and operating
conditions.
Step 10: Study risks of high cost itemsand occurrences. Failure data is available
from many sources (Bloch 1994) or (Bloch
1995) to test if the assumptions made inthe analysis are valid or if unusual risks have
been taken with numbers used in the study.Consider the following failure rate valuesin Table 2 as failure rate or the reciprocal
MTBF which shows the failure data used forthe analysis is within the expected range.
Step 11: Select preferred course of actionusing LCC.The selection of a parallel/redundant strategy using ANSI pumps is the
most attractive alternative out of the threeproposed because it avoids process failure
and thus reduces the high cost of un reliability.Buy equipment which is electrical powerefficient and correctly sized with high
hydraulic efficiency to make substantial
reductions in electrical power consumptionwhich is usually a hidden cost item but clearly
identified by LCC as a vital element.
Summary
Life-cycle costs include cradle to gravecosts converted to NPV economicmodels. When failure costs are included,
the quantity of maintenance manpowerrequired can be engineered which avoidsthe use of antique rules of thumb about how
maintenance budgets are established. LCCis a method to correctly consider long-termbusiness decisions which have advantages
for profitability. LCC is not easy, but it iseffective for building a sound business case
for action.
LCC techniques provide methods to
consider trade-off ideas with visualization
techniques as described above which arehelpful for engineers. Likewise LCC analysisprovides NPV techniques of importance
for financial organisations, and LCC detailsgive both groups common ground for
communication to aid in insuring soundbusiness decisions and actions. LCC is thelaser guided missile attack on important
business problems for projects and processes.Of course it requires greater sophisticationthan attacking problems with proverbial
hammers, tongs, and brute force.Good alternatives for LCC require creative
ideas. This is the role of the engineer tosuggest and recommend cost effective
alternatives. Much lower LCC are obtainedwhen creative efforts are employed in thedesign area. Making changes downstream
in the operating plants has smaller chancesfor improvements because its employedtoo late in the improvement cycle. Design
About the Author:
Jacob Joby Varghese is currently working with Group Internal
Audit, Dubai World as Senior Technical Auditor. He is a mixed-
use Development and Commercial Specialist with over 15 years
of experience in Business feasibility, Master planning, Program
Management, Project Management, Planning and Execution of
Civil Works, Site Management and Planning. Jacob is a Civil
Engineer and a Certified Cos t Engineer (CCE). Currently he is
pursuing his MBA for Real Estate and Construction Management
from the College of Estate Management, University of Reading,
London and CIA.
Figure 5: Pareto Cost Chart For Solo ANSI Pump
Figure 6: Pareto Cost Chart For Parallel / Redundant Pumps
Figure 7: Pareto Cost Chart For Solo API Pump
Table 2: Failure Data
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2008 Deloitte & Touche (M.E.). All rights reserved.
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and i ts networkof member firms, each of which is a legally separate and independent entity. Please see
www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche
Tohmatsu and its member firms.
In a globalized world, competition is everything. At Deloitte, we makeit our business to study and understand the competitive environment.With 1,700 people in over 25 locations across the Middle East, andaccess to the deep intellectual capital of 165,000 people worldwide,Deloitte is your local resource to connect you to a global network ofexpertise and innovation.
Working in partnership with you, our people design solutions thatbring tangible returns and sustainable growth for your business. Fromauditing to tax, and consulting to financial advisory services, ourmember firms provide a broader range of multidisciplinary servicesthan any of our competitors. For world-class thinking with an edge,you know where to come.
Visit us at www.deloitte.com
Eighty Yearsin the Middle East
With the changingglobal sceneStay in the front row
Emaar Business Park
Sheikh Zayed Road
Building 1, 4th Floor, Suite 4
PO Box 282056 Dubai, UAE
Tel: +971 (0)4 369 8999
Fax: +971 (0)4 369 8998
role of Audit in altering, fixing, monitoring
and bringing transparency about controlsand risks in organisations etc.
Involvement is sought from the entire UAEand not just from select few Emirates. It is
also proposed to seek participation from theregional chapters in this pioneering event.We would also welcome suggestions from
the IIA headquarters that will add value tothe UAE Audit Week.
The date is set, the objectives are clear.Equally clear is the fact that it is a labourthat will assume impressive shape only with
the help of volunteers. Working together,overcoming challenges as one cohesive unitis bound to make the UAE Audit Week a
period of learning and sharing.
maximum reach for the campaign and to
ensure all required logistics are in place.Volunteers can add muscle to the event atmultiple levels. This could involve preparing
the marketing material, helping with thepublicity, visiting interested outfits, meeting
potential sponsors, presenting emergingaudit initiatives, in short any tiny step thatwill propel the week long mammoth event
forward.
As part of the UAE Audit Week severalevents are on the anvil. These includeconducting campaigns at major universitiesand colleges in the UAE that will bring about
an ameliorated awareness about the auditprofession; signing MOUs with prominentorganisations to mark the event and also
awareness sessions on Risk and its impact,
UAE-IAA proposes to hold the UAE Audit
Week from 11-18 February 2011, with theobjective of raising awareness about Auditamongst large business entities, both in the
public and private sectors.
Since an event of this size and scale will
require a large number of volunteers andcoordinated effort from the audit fraternity,through this forum I request audit
professionals to come forward to assumeroles and responsibilities that will make the
exercise comprehensively beneficial to eachone of us. Please permit me to elaboratefurther
A good starting point to flag off preparationswould be to identify key business sectors for
the campaign. Some of the broadly identifiedsectors are: education, aviation, financial, oil& gas, transport, real estate, construction,
communication, hospitality, retail and healthsectors, external auditors & consulting firms,regulatory bodies, professional bodies, the
World Gold Council and volunteers fromthe Conferences and Exhibitions sector.
Once done, we need to identify the ChiefAudit Executives (CAE) or other key
contacts to support this initiative. This willbe followed by a brain storming session with
the CAEs and other volunteers to discussand deliberate upon how to make the eventmore meaningful. A corollary to this wouldbe defining roles, allocating responsibilities
and firming up deadlines that will mark therolling out of the campaign. Amidst suchseamless voluntary work, a core working
group will evolve that will run and monitorthe campaign with a keen eye on the agreedmilestones.
With key decisions made on the sectorsto be covered, with leaders identified for
each sector and a working group formedfor each sector, it would be time to roll
out the marketing material, debate onpossible communication channels to ensure
UAE Audit Week
By: Raza Abdulla
About the Author:
Raza Abdulla has been working with the Emirates Group Internal
Audit for 28 years as Vice President - Internal Audit. He has been
the past chairman for the IAAIA, current EXCOM member, and in
his professional capacity as the founder member and past President
of the IIA- UAE Chapter, contributes to the ongoing research and
development of the internal auditing profession in the region.
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18 October 2010 19 October 2010
reflects improved investor sentiment. Weare optimistic that this will increase the
demand for internal auditors.
Ultimately the key issue within the internal
audit market has not changed. Internalauditing remains underdeveloped byinternational standards and there will
eventually be immense pressure to improvecorporate governance as the regionintegrates with the global economy.
It is likely to be only a matter of time before
this issue is comprehensively addressed andit is certainly easier to make the type ofinvestment necessary when economies, as
now, are growing. We will be surprised anddisappointed if the development of internalauditing does not return in the near future
to the pattern that was established prior tothe financial crisis.
For further insight on the GCC internal auditrecruitment market please view the BarclaySimpson Interim Middle East Market Report
2010 at http://www.barclaysimpson.ae/middle-east-interim-market-report-2010.
this has remained good with a local pool o finternal auditors supplemented with those
seeking to move into the region. Accordingto a recent survey by HSBC, the GCC isstill the most popular region in the world
for expatriate workers. They are attractedby both the financial rewards and potentialcareer development prospects.
Latest economic forecasts, given stableoil prices, are for economic growth in the
GCC to exceed 5% in 2011. This is stillbelow pre-crisis levels. Without doubt a
lack of transparency and Western levelsof governance are hindering investmentand decision making. However, as the
fallout from such troubled groups as DubaiWorld is resolved, confidence is emerging.The recent return of Dubai to the credit
markets is further boosting confidence and
heavily in the recruitment of corporategovernance staff. Substantial investment is
being made right across internal audit, risk,compliance, legal and information securityfunctions.
Similarly within the GCC, at the start of2010, there was an upsurge in the number
of vacancies for Heads of Audit and othersenior internal audit management positions.The common remit was either to establish
an internal audit function or to develop astronger function than already existed. We
perceived this as a reaction to the weak riskmanagement and systems of control thatthe credit crisis and subsequent recession
had exposed. Whilst many of these roleswere in banking, it included other sectorssuch as real estate, media, industrial and
state owned groups.
We understood this to imply that a broadly
based commitment to progressive internalauditing was underway. We are thereforesurprised to report that this initial surge
of recruitment activity petered out andfew of the vacancies for senior roles weresuccessfully recruited. Decision makers have
seemingly become risk averse and initialintentions to reform have been outweighed
by uncertainty and cost containmentmeasures.
The exceptions are Qatar and Abu Dhabi,reflecting the relative strength of theireconomies compared to the rest of the
GCC. Even here, recruitment has been ona replacement basis rather than providingany sign that internal audit departments are
being expanded. The Big 4 and internal auditconsultancy firms have benefited from thisand have gained audit and risk assurance
assignments at the expense of the expansionof in-house internal audit departments. Notsurprisingly there has been demand from
the consultancies for experienced internalauditors.
In terms of the availability of candidates,
a balance of employers that are intending
to recruit.
However, for all the supposedly sophisticated
regulatory regimes and all the sums invested
in corporate governance and internal
auditing, the credit crisis still happened. This
has to be seen as a failure. Governments and
regulators around the world have responded
to this failure and there have been any number
of initiatives. Basel III, the overhaul of bank
capital and liquidity standards, is perhaps
the most high profile and far reaching of
the co-ordinated responses. Incrementally,
regulators are looking to make the financial
system less risky.
It is equally clear, perhaps as a result of
regulatory pressure, that since the start of
2010 the financial sector in other regions
of the world have responded by investing
they most often have the implicit support
of highly solvent sovereign governments,
markets are better able to cope with losses
rather than uncertainty. In this respect,
the lack of adequately developed systems
of corporate governance and a legal
infrastructure is not helping the region.
Recruitment is a form of investment.
Companies invest and recruit when they feel
confident. Given that effective corporate
governance would improve confidence, it
is perhaps easy to make a case for building
on the investment in governance that was
apparent before the financial crisis. The
sovereign states that make up the GCC
have the opportunity to do so. Economic
growth is forecast to accelerate further in
2011 and survey evidence is emerging that
suggests general recruitment patterns are
in the process of improving. There is now
The background to the financial crisis was
in our view reasonably easy to explain. It
was caused by cheap money and too much
debt. The consequence was increased asset
prices which supported more debt, the
real risks of which were hidden by financial
complexity and, in the case of the GCC,
opaque ownership structures.
If anyone thought the GCC might be
immune when the financial crisis struck,
Dubais overheated property market
demonstrated it was not. However, unlike
Europe, where private debt default has
been replaced by the threat of sovereign
debt default, there is little such concern
within the GCC. It is therefore surprising,
on the back of both expansionary fiscal
policies and anticipated economic growth
of 4% in 2010, how lacklustre the recovery
feels. Until recently it was clear that outside
of the public sector, unlike other regions of
the world, the recovery had yet to reachthe corporate governance recruitment
market.
Perhaps the relative transparency of
Western economies is the difference.
Although the credit related losses in Europe
and the United States were greater, they
were also more readily identified and
quantified. Identifying and reporting losses
provide certainty and allows informed
investment decisions to be made. Within
the GCC, uncertainty comes from lower
levels of transparency and questions about
the governance of state owned entities and
family owned companies which form the
major part of the regions economy. Whilst
Barclay Simpson Internal Audit
Recruitment Review
By: Tim Sandwell
About the Author:
Tim Sandwell is a Director of Barclay Simpson and leads their
Middle East operation. Barclay Simpson is a specialist corporate
governance recruitment consultancy that covers internal audit,
compliance, risk management, IT security and legal professionals.
They have offices in Dubai, London and Hong Kong.
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20 October 2010
By: Vishal Thakkar
About the Author:
Vishal Thakkar is a qualified Chartered
Accountant and Certified Internal
Auditor. He is currently working with
Group Internal Audit department of
Petrofac and can be contacted at
Knowledge UpdateNew on the Horizon: Leases for
Real Estate companiesIn August 2010 the International Accounting Standards Board and
the US Financial Accounting Standards Board published a joint
exposure draft on leases, which will have significant implications
on lease accounting in the real estate sector if implemented in its
current form. A significant overhaul in lease accounting standards
has been widely anticipated for some time now. In fact it is over 10
years since the core proposals in this exposure draft (ED or Leases
ED) were first made.
As expected, the proposed standard, if adopted in its current form,
will make significant changes to the current approach to accounting
for leases. In summary, it removes the differences between
operating and finance leases and brings all lease obligations onto
the lessees statement of financial position as a financial liability. For
real estate occupiers this is significant. In the past, the majority of
property leases were classified as operating leases and so property
rentals were treated as an operating expense in the lessees financial
statements. Under these proposals lessees would be obliged to
bring the net present value of their future lease obligations onto
the statement of financial position.
http://www.kpmg.com/Global/en/IssuesAndInsights/
Art i c lesPub l i c a t ions/Pages/NOTH-Leases - for -Rea l -
EstateCompanies.aspx
Arab Media Outlook: Collaborating
for GrowthThis groundbreaking report, released by the Dubai Press Club in
conjunction with PricewaterhouseCoopers, reviews the current
state of Arab media across twelve Arabic-speaking countries.
Supported by Dubai Media City, Dubai Studio City and InternationalMedia Production Zone, the Arab Outlook focuses on the impact
of the global media trends on the Arab Media and predicts the
course of events for many aspects of the industry over the next
five years.
Developments in digital media and the emergence of broadband
access and TV delivered directly to mobile devices present exciting
growth opportunities for media companies across the Arabic-
speaking world. Yet in order to benefit from these opportunities,
certain factors must be addressed: the relatively limited availability
of affordable broadband access across much of the region; and
the lack of reliable audience and readership figures: Conclusions
outlined in this report enable us to take an accurate view of the
Arab media industry both in quantitative and qualitative terms.
http://www.pwc.com/m1/en/publications/Arab_media_
outlook.jhtml
Guide to Using International
Standards on Auditing in the
Audits of Small and Medium-Sized
EntitiesThe second edition of this Guide was commissioned by the
IFAC Small and Medium Practices (SMP) Committee to assist
practitioners on the audit of small and medium-sized entities
(SMEs), and to promote consistent application of the International
Standards on Auditing (ISAs). While developed by the Canadian
Institute of Chartered Accountants (the CICA), the Guide is the
full responsibility of the IFAC SMP Committee. The International
Auditing and Assurance Standards Board (IAASB) staff and a global
advisory panel, with members drawn from a broad cross-section
of IFAC member bodies, have assisted in reviewing the Guide. The
Guide provides non-authoritative guidance on applying ISAs. It is
not to be used as a substitute for reading the ISAs, but rather
as a supplement intended to help practitioners understand and
consistently implement these standards on SME audits. The Guide
does not address all aspects of ISAs and should not be used for
the purposes of determining or demonstrating compliance with
the ISAs.
The Guide is intended to explain and illustrate so as to develop a
deeper understanding of an audit conducted in compliance with
ISAs. It offers a practical how-to audit approach that practitioners
may use when undertaking a risk-based audit of an SME. Ultimately
it should help practitioners conduct high-quality, cost-effective SME
audits, and in so doing, help them better serve the public interest. It
is anticipated that the Guide will be used by member bodies, audit
firms and others, as a basis for educating and training professional
accountants and students. IFAC member bodies and firms may use
the Guide, either as it is or tailored to suit their own needs and jurisdiction. It provides a basis from which member bodies and
others can develop derivative products such as training materials,
audit software, checklists and forms.
http://web.ifac.org/media/publications/5/guide-to-using-
internationa-1/guide-to-using-internationa-1.pdf
The new IIA International Standards or the Proessional Practice o Internal Auditing (Standards) took eect in January,
2009. These Standards require assessments o IT governance, use o data analysis techniques, assessments o raud risk
management and creation o records retention policy. Do you know how the Standards aect your organization? Are you
using them as an opportunity to create value? At Protiviti, we recently held several online seminars or more than 2,000
internal audit leaders to help them understand the revisions. We are helping our clients use the Standards to make their
internal audit unctions more eective and efcient. Could you be doing the same? Ask how atprotiviti.com today or
contact Adnan Zaidi, Managing Director on + 971 50 319 6564 or email [email protected].
Ask how Protiviti is helping clients use thenew IIA standards to create organizational value.
2010 Protiviti Inc. An Equal Opportunity Employer. Protiviti is not licensed or registered as a public accounting frm and does not issue opinions on fnancial statementsor oer attestation services. PRO-1109
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UAE Training Calendarfor November / December 2010 & January 2011
TRAINING
Continuous Auditing Methodology
Top 5 Mistakes Audit Departments Make
Communication - The Cornerstone of Audit
Building Performance Excellence
How to Plan Workshop
Audit Challenges Routable
Relationship Development
Cyber Forensic- Forensic Auditing
Hunt for Fraud:Prevention and
Detection Techniques
Information Risks Management
Implementing Control Self Assessment
Successful Application & design
Demonstration of a Continuous Control
Monitoring using ACL
Hands on Case Study using Hands on Desk Top
Introduction to Construction Audit
Construction Audit Advanced Technique
FRAUD AUDITING/ FORENSICS
Investigative Interviewing- Corp. Internal
Investigation
CIA Review Course Paper 1
CIA Review Course Paper 2
CIA Review Course Paper 4
CIA Review Course Paper 3
ALL PAPERS
DATE
Nov. 7-8
Nov. 9-11
Nov. 21 - 22
Nov. 23- 25
End of
November
or beginning
December
Dec. 6 7
Dec. 8 9
Dec. 12 - 13
Jan 2011
PROPOSED FACILITATOR
Robert Mainardi
Albert Marcela, Jr.
Gretel de Paepe
Denise Cicchella
Larry Rosipajla
Phoenix Financial