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Chapter 8: Preliminary Survey &

Internal Control Review

ACCT620: Internal Auditing

tto ChangPro!e""or o! A##ounting

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Step" !or Preliminary Survey

$ The opening #on!eren#e

$ n%"ite tour 

$ Study o! do#ument" on "ite

$ 'ritten de"#ription o! the auditee

$ Analyti#al pro#edure"

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The pening Con!eren#e

$ ()e#tive" o! the opening #on!eren#e:

 * +li#it a "pirit o! #ooperation

 * Convey in!ormation that will help the audit

 * (tain in!ormation needed !or the audit

 * Promote a !eeling o! #redi(ility

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Planning the pening

Con!eren#e$ Preparing a written agenda:

 * Introdu#tion o! tho"e pre"ent at the #on!eren#e

 * An outline o! the audit a""ignment * Addre""ing any audit #on#ern"

 * Coordination o! the audit with auditeeoperation"

 * ,i"#u""ion o! the -ind o! in!ormation needed !orthe audit and the e.tent o! a""i"tan#e

 * Timing and !orm o! the audit report

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+"ta(li"hing an Appropriate

Con!eren#e Climate$ /o"ter a pro!e""ional #ourte"y

 * Setting a "pe#i!i# time and pla#e

 * Condu#ting it in a uiet "etting

 * ,i"tri(uting a written agenda (e!ore meeting

 * Ta-ing a #on!ident (ut re"pe#t!ul manner 

 *  1aintaining a rela.ed tone o! #onver"ation * Pro)e#ting an open and #ooperative attitude

 * eeping the meeting within rea"ona(le time

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3uilding a /eeling o! Credi(ility

$ Auditor gain" #redi(ility !rom *  (eing a""o#iated with the IA pro!e""ion

 * their reporting line within the organi4ation * their own demon"tration o! pro!e""ionali"m

$ Per"onal "our#e" o! #redi(ility

 * appropriate dre"" and grooming5 manner" * #ompo"ure5 preparation5 re"pe#t !or auditee

$ ,o#umenting the opening #on!eren#e

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n%"ite Tour 

$ The o()e#tive o! the tour i" to o(tain an

overview o! operation"

$ S#an operation" !or unu"ual a#tivitie"5

indi#ation o! ine!!i#ien#y5 unu"ed !a#ilitie"5

idle wor-er"5 poor maintenan#e o! ma#hine"

$ ("erve the employee" attitude" towardtheir )o(" and how they relate to ea#h other

and to management

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Study o! ,o#ument"

$ n%"ite peru"al provide" updated

in!ormation that indi#ate" #hange" in the

organi4ational "tru#ture5 re"pon"i(ilitie"5and operation"

$ ,o#ument" "tudied: de"#ription o! #urrent

 poli#ie" and pro#edure"5 organi4ational#hart"5 operational !low%#hart"5 )o(

de"#ription"5 per!orman#e report"

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'ritten ,e"#ription o! the

Auditee$ The de"#ription" "hould in#lude:

 * ()e#tive" o! auditee operation"

 * +nvironmental re"tri#tion" "u#h a" #orporate

 poli#y impo"ed (y top management

 * /un#tional #omponent" o! the organi4ation

 * Re"our#e" 7 and #la""i!i#ation o! employee"5#a"h !low5 PP+5 in!ormation "y"tem" et#9

 * 1anagement

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Analyti#al Pro#edure"

$ Compare #urrent total" with previou" period

$ Compare operating re"ult" with (udget"

$ Compare with indu"try average

$ Relate !inan#ial in!ormation to operating data

$ Compare with "imilar divi"ion" or department$ Compare per!orman#e to e#onomi# data

$ S#an !or unu"ual item"

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Review o! Internal Control

The review o! internal #ontrol in#lude"

$ A de"#ription and analy"i"

$ An evaluation

$ A ri"- a""e""ment

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,e"#ription o! Control Sy"tem

$ Internal Control ue"tionnaire 7IC9

 * Pro": le"" li-ely to omit important ue"tion"

 * Con": tiring5 lengthy5 re"pon"e (ia" toward

;ye"< an"wer5 indire#t eviden#e

$  /low #hart" with narrative de"#ription"

 * Two type": hori4ontal and verti#al !low#hart"

 * Running narrative u"ually in#luded in verti#al

!low#hart" to de"#ri(e the other related #ontrol"

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Pro#edural 'al-%Through

$ An auditor ;wal-"< through a pro#e"" (y

 * =i"ting the "tep" to (e per!ormed in the pro#e""

 * Providing a #he#-%o!! #olumn indi#ating

whether ea#h "tep ha" (een per!ormed

 * #ommenting on what" o("erved

$ Advantage o! wal-ing through i" to o(tain!ir"thand5 #omprehen"ive -nowledge o! how

a parti#ular pro#e"" i" per!ormed

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,o#umentation 'al-%Through

$ An auditor !ollow" parti#ular operation or

tran"a#tion !rom (eginning to end through

do#umentation$ It i" one !orm o! vou#hing tran"a#tion" to

#he#- whether "pe#i!i# #ontrol" are pre"ent in

a "y"tem$ u"ually limited to only one or two

tran"a#tion"

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=imited Te"ting o! the Sy"tem

$ Purpo"e: to under"tand how well the "y"tem

i" operating and i! #ontrol" are !un#tioning

at variou" part" o! the "y"tem$ Sele#t a !ew item" 72>%?09 !or e.amination

$ 1ay(e #om(ined with a wal-%through

$ The re"ult" are written up a" a ;1emo to

the /ile< and in#luded in the wor-ing paper 

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+.tended Te"ting o! the

In!ormation Sy"tem$ I! an auditor ha" any rea"on to "u"pe#t

 pro(lem" with the in!ormation "y"tem5

e.tended te"ting i" )u"ti!ied$ Some auditor" pre!er to prove the integrity o!

the "y"tem (e!ore going !urther 

$  @ormally involve" with "tati"ti#al "ampling"o that a #ertain level o! #on!iden#e 7eg5

>B9 #an (e a#hieved

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Preliminary +valuation o!

Internal Control Sy"tem$ Auditor" u"e internal control matrices to

organi4e audit re"ult" up to thi" point It

#ontain" the !ollowing #olumn": * Spe#i!i# audit o()e#tive"

 * Important re"ult" !rom preliminary "urvey andreview o! internal #ontrol

 * The ri"-" a""o#iated with ea#h re"ult

 * Appropriate #ontrol" relevant to ea#h re"ult

 * Auditor" evaluation

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Ri"- A""e""ment

$ A!ter internal #ontrol evaluation5 auditor"

rea""e"" the level o! ri"- a""o#iated with the

auditee" operation Three thing" are li-ely: * The revi"ed ri"- i" low Auditor" "hould write a

report and go on to higher%ri"- area"

 * =ittle to gain !rom !urther audit 'rap up andgo to ne.t audit pro)e#t

 * The ri"- remain high +.pand te"t o! #ontrol"