Standards on Internal Audit Part- II

This article explains two very important Standards on Internal Audit that has been formulated by the Institute of Chartered Accountants of India. These Internal Audit Standards are as follows-

Internal Audit Standards

  • Standard on Internal Audit (SIA) 9: Communication with Management

It states the standards on communicating with the management, during and after the conduction of the Internal Audit Function. The contents of this Standard on Internal Audit are as follows-

  1. Introduction: The Internal Audit Standard on Communication with Management provides a basic framework about the matters that must be communicated with the management by the internal auditor. For this the auditor must consider the following aspects-
  • Communicating the responsibilities, scope and timings of the Audit clearly.
  • Promoting efficient and effective two way communication.
  • Providing on time observations and reviews.
  • Obtaining all the relevant data and information.
  1. Matters to be communicated: The matters that have to be properly communicated by the auditors to the management under this Internal Audit Standard are-
  • The well-planned scope and timing of the Internal Audit
  • All the significant findings during the conducted Internal Audit

 

Stages of Communication involves-

  • Discussion Draft
  • Exit Meetings
  • Formal Drafts of communication
  • Final Report
  1. Communication Process: The process of communication involves the following steps to be completed by the internal auditor-
  • Establishing a proper communication Process and mode.
  • Different forms of communication.
  • Timing of making such communication.
  • Adequacy of the process and modes of such communication.
  1. Documentation: The documentation that has to be maintained under this Internal Audit Standard while making any communications with the company’s management are-
  • Where written communication is to be done, the auditor must retain a copy of such communications for the internal audit documentation.
  • Where oral communication is done, the auditor must record the details related to such communication in the documents providing details about when and to whom it has been communicated.

 

  • Standard on Internal Audit (SIA) 10: Internal Audit Evidence

It states the standards on collection of evidences and proofs during the Internal Audit Function. The contents of this Internal Audit Standard are as follows-

  1. Introduction and Objective:
  • The scope and coverage of the Internal Audit evidence collected during the audit are way much broader than Statutory Audit.
  • This Internal Audit Standard deals with aspects of the gathered evidences that are qualitative and quantitative.
  • It covers all the comments and reviews about the internal control system, propriety aspects of transactions and risk management.
  1. Audit Evidence: The second important content in the Internal Audit Standard is the collected evidences during the audit. The facts about the evidences are-
  • Such evidences are persuasive in nature rather than being conclusive.
  • The auditors obtain the audit evidences on selective basis through procedures of statistical sampling or personal judgments.

The judgment of the internal auditor is usually influenced by the following aspects:

  • Type available information.
  • Degree of misstatement risk.
  • Materiality of the item.
  1. Categories of Documentary Evidence: The evidences collected under this Internal Audit Standard in form of documents are categorized on the basis of their way of origination. These category of documentary evidences are as follows-
  • Those originating from entity and held by them.
  • Those that have originated from the organizations but held by the third parties.
  • That have originated from third parties and held them itself.
  • Those originated from third parties but held by the company.
  1. Modes of obtaining Audit Evidence: The Internal Audit Evidence can be obtained or gathered with any of the following mode or method-
  • By computation
  • Through inspection
  • By inquiry and confirmation
  • Through analytical review
  • By observation

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.
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