monitoring role. VFM audit can be carried out on any area of the business. Since a VFM audit is concerned with obtaining the best possible combination of products/services for the least resources, it measures three qualities:-
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Economy - Economy relates to least cost. The organisation should attain the appropriate quantity and quality of physical, human and financial resources at the lowest cost. The systems in an organisation should operate at a minimum cost associated with an acceptable level of risk.•
Efficiency- This is a measure of the relationship between goods and services produced (outputs) and the resources (inputs) used. Therefore, efficiency relates to the best use of resources. The goals and objectives of an organisation should be accomplished accurately and on a timely basis with the least use of resources.•
Effectiveness involves determining how well an activity is achieving its objectives and therefore effectiveness provides assurance that organisational objectives will be achieved.Monitoring role for local authorities:-
Besides VFM, internal audit can also monitor best value to ensure that the authority has systems in place to achieve best value. Best value implements 4 C’s instead of the 3 E’s of a VFM audit.
• Challenge – monitor how well and why a service is provided. • Compare – to other authorities.
• Consult – targets should be set in consultation with tax payers and service users.
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Compete – involve in fair competition.3. Role of performing information technology audits by monitoring and testing controls in the areas of database management, system
development process, change management, networks, asset management, capacity management, access control, operational system and E-business.
4. Perform operational audits
Operational audits are audits of the operational process of the organisation. These are also known as management audits or efficiency audits. Their main objective is to monitor management’s performance and ensure that company policy is adhered to.
The two main aspects of an operational assessment is to ensure that the policies are adequate and that they work effectively.
Outsourcing the Internal Audit Function to an outside source. Audit firms offer internal audit services as part of their portfolio.
Advantages of outsourcing:-
1.
Service provider can provide the necessary expertise for internal audit work. They may be able to provide a broader range of expertise and specialist skills and as they serve many different clients therefore staff may be available for specialist work that the company may not be able to afford.2.
If internal audit is only required for specific functions or particular jobs each year then the expertise can be purchased as required. This will minimise the companies in-house costs.3. They can direct their own work and educate management as to the service required.
4. Provides an immediate team.
5. Can be appointed for a specific timescale
6.
Outsourcing will remove the need for training internal staff. Effectively training will be provided for ‘free’ as the outsourcing firm will beresponsible for keeping staff up-to-date with new auditing techniques and processes.
7.
An independent view will be provided that may identify control weaknesses that the internal audit department may miss.Disadvantages of outsourcing
1.
Fee pressure. The relationship needs to be managed carefully to ensure that the service provider does not decrease the quality of their work due to insufficient fees.2.
The outsourced firm may not have any prior knowledge of the company and will need time to ascertain the accounting systems and controls before commencing work.3.
Continuity of service of staff at the service provider. Depends on the retention rate. Larger internal auditing firms will be able to offer their staff better career progression which should assist staff retention.Internal Audit Department and Corporate Governance
Internal audit department can assist the directors with the implementation of good corporate governance in an organisation through:
(i)
Reviewing reports to the board and reports produced by the board to ensure that they do present a balanced assessment of the company’s position and prospects. The internal audit department will have good knowledge of the operations of the company as well as access to accounting information. The department can effectively ‘audit’ board reports to ensure they are accurate and understandable.(ii)
Internal controls. The board need to maintain a sound system of internal control. The internal audit department will be able to review existing controls and recommend improvements to ensure this objective is met.(iii)
Application of ISA and IASs. The board need to have a policy for applying appropriate International Statements on Auditing (ISA) and International Accounting Standards (IAS) to the organisation. Internal audit will be aware of new auditing standards and will have the technical expertise to identify changes required by accounting standards.(iv)
Amendments to control systems for new auditing standards and financial accounting systems for new accounting standards can therefore be recommended.(v)
Communication with external auditors. The corporate governance code requires communications with external auditors normally be via the audit committee, although the board must maintain an appropriate relationship with the external auditors. However, internal and external auditors can also work together to ensure that the internal control system is sufficient; possibly by external audit delegating work to internal audit, and each auditor reviewing the work of the other auditor. The board will therefore receive reports from both sets of auditors which will be accurate because they have been properly checked.(vi)
Communication to the board. The internal auditor can also check that appropriate information is provided to the board from the external auditor. ISA 260 Communications of audit matters with those charged with governance provides a list of matters which should be communicated to the board and the internal auditor can work with the external auditor to ensure that this information is provided.Role of external auditor in respect to evaluating and testing the work of the internal auditor include:
They external auditor must:-
–Check that the work is performed by persons having adequate technical training and proficiency as internal auditors, by ensuring that appropriate training programmes are in place and the auditor has appropriate qualifications.
– Ensure that the work of assistants is properly supervised, reviewed and documented by reviewing the procedure manuals of internal audit and the audit working papers produced.
– Determine that sufficient and appropriate audit evidence is obtained to afford a reasonable basis for the conclusions reached, by reviewing the internal auditor’s working papers.
– Check that the conclusions reached are appropriate in the circumstances and that any reports prepared are consistent with the results of the work performed by reviewing the work performed and the reports produced.
– Ensure that any exceptions or unusual matters disclosed by internal audit are properly resolved by the external auditor and management.