Audit by Javed Siddiqui

7/27/2019 Audit by Javed Siddiqui

1/44

Internal Audit & ManagementInternal Audit & ManagementEffectivenessEffectiveness

v u

Exe c utive Dire c to r, SECP


2/44

What Internal Audit is ?What Internal Audit is ?

Evolution of Internal AuditEvolution of Internal Audit Ever one is an Internal Auditor !Ever one is an Internal Auditor !

Why IA is so important for PSEWhy IA is so important for PSE

Role of IARole of IA 3 Es3 Es

Factors impacting IA effectivenessFactors impacting IA effectiveness

Governance IssuesGovernance Issues

Dos & Don'tsDos & Don'ts

Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP

22


3/44

AnAn inde endentinde endent ob ectiveob ective assuranceassurance

activity.activity.

Designed to add value and improve anDesigned to add value and improve an

organization's operations.organization's operations.

It helps an organization accomplish itsIt helps an organization accomplish its

,,disciplined approach to evaluate, anddisciplined approach to evaluate, andimprove the effectiveness of riskimprove the effectiveness of risk


33

management, control, and governancemanagement, control, and governance

processes.processes.


4/44

IA is a catalyst for improving anIA is a catalyst for improving anorganizations effectiveness and efficiencyorganizations effectiveness and efficiencyy prov ng ns g an recommen a onsy prov ng ns g an recommen a ons

based on analyses and assessments ofbased on analyses and assessments ofu ru r ..


44


5/44

-,

systems were first instituted by organizedbusinesses and governments as far backas 4000 B.C.

e nee or an n ca ons o au s canbe traced back to public finance systems

the City States of Italy, etc., all of whichdeveloped a detailed system of checks and


55

coun erc ec s.


6/44

Interestingly, the scope of these early

modern internal audits; an examination ofthe correctness of accounting records andan eva ua on o e propr e y o ac v es.

control over the activities of theorganization.

Such broad emphasis was not to reappear


66


7/44

references, railroad companies arecredited being the first modern employersof internal auditors.

ey were t t e as trave ng au tors .

ur ng e a er par o e cen urythese first real internal auditors becamecommon.


77


8/44

, ,

and complexity, Management found itim ossible to visuall observe all theoperations in their respective areas of

responsibility.

A critical need emerged for separate internal

accounting information used for decision-making and evaluating the efficiency of work


88

performed for the business.


9/44

challenges, special staff people wereappointed to review and report on;

What ? happening

Why ? probe

These people came to be known as internalauditors.


99


10/44

Summing up, the collective effect of

growing transaction complexity and volume; owners remoteness from transactions source;

technical expertise required to review and

summarize business activities in a meaningfulway;

procedural discipline necessary for being thee es and ears of mana ement,

All contributed to the creation of an IAdepartment within business organizations.

Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exe c ut ive Dire c to r, SECPExe c ut ive Dire c to r, SECP

1010


11/44

Started as an internal business function

payroll fraud, loss of cash, and otherassets.

Scope quickly extended to the verification.

Later on raduall moved from an auditf o rmanagementemphasis to an audito fmanagement approach.


1111


12/44

The year 1941-- a turning point in thedevelopment of internal auditing

Two significant events occurred; One, publication of the first major book on the

subject by Victor Z. Brink.

Two, 24 individuals joined together to formThe Institute of Internal Auditors USA (IIA).


1212


13/44

,

business effectiveness.


1313


14/44


15/44

Who is the best Internal Auditor ?

Lets have a show of hands

The First Auditor General of Pakistan ?

The President of IIA USA ?

The President of Chartered Institute of


1515


16/44

n ess you con ne s compan on o yoursto deep slumber, its always there to reportou all our ille itimate acts !


1616


17/44

Usually have large spectrum of

stakeholders concerned

en ea s w pu c money

v v u rv v ry

efficiency in service delivery


1717


18/44

Governance issues

Opportunities of pilferages

O erate in an increasin l com lex

and challenging environment.


1818


19/44

Increasing demands and expectations ofthe community, government and the.


1919


20/44

Initially, administrative procedure with a

focus on compliance to ensuring goodgovernance.

The era of transactional audit all financial -

The role later increased to cover the

internal control environment.


2020


21/44

enhanced the role of IA.

Board Audit Committees formed &.

risks within organizations and measuringtheir risk appetite (risk based audits).


2121


22/44

Mandatory for listed companies to have anIA function

Public sector entities required to havemore transparency and moreaccountability since they spend taxpayer

.


2222


23/44

the new accountability, governance andcontrol era.

It is an element of a stron ublic sectorgovernance foundation.


2323


24/44

resource on internal control, it should notbe a substitute for a strong internalr y .

response to risks.

As is true for all internal auditors, publicsector internal auditors assistor anizations in im rovin their


2424

operations.


25/44

IA Role in Corporate GovernanceBoard of Directors & Committees

Review of financial statements prior totheir approval by the BOD.

Review of the Co.s statement on internalcon ro sys ems y u omm ee pr orto endorsement by the Board of Directors.

Review of management letter of external


2525

thereto


26/44

IA Role in Corporate GovernanceBoard of Directors & Committees

Consideration of major findings of internalinvestigations and management'sresponse t ereto.

e n erac ve o e su ec ogovernance, bringing best practices ideasabout internal controls and risk

management processes to auditcommittee members.


2626


27/44


28/44


29/44

IA Role in Corporate GovernanceMonitoring

Consideration of any other issue ormatter as may be assigned by theBoard of Directors.


2929


30/44

Governance Issues.Governance Issues.

functionfunction

Is operationally independent.

Is appropriately positioned in the entitys

governance framework

Is business focused rather than only a


3030

required skill set

G IG I


31/44


functionfunction

More experienced staff for operational /management audit, less experienced for.

and balanced, and are linked to the risksin the entity.

Undertakes all audits in accordance with

Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3131

specified auditing standards.

G IG I


32/44


functionfunction

Has the confidence of key stakeholders, ,

Audit Committee and senior management.

Provides an annual assessment, based oninternal audit work undertaken, of the

e ec veness o e en y s sys em ointernal controls.

Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3232


33/44


Key characteristics of a good IAKey characteristics of a good IA

Advises the Audit Committee of patterns,

internal audit work

Regularly informs the Audit Committee ofprogress in the implementation of agreed

interna an externa au it an ot errelevant report recommendations

Ja ve d K Sid d iq ui,Ja ve d K Sid d iq ui,

Exec ut ive Dire c to r, SECPExec ut ive Dire c to r, SECP3333


34/44

10 main Problems of IA in PSE10 main Problems of IA in PSEa Malaysian studya Malaysian studyFACTORSFACTORS OccrOccr RankRank %%

ac o u aac o u a ..

Does not have top mgmt supportDoes not have top mgmt support 1919 22 13.113.1

Lack of coo erationLack of coo eration 1717 33 11.711.7

Lack of audit staff trainingLack of audit staff training 1515 44 10.310.3

Lack of independenceLack of independence 1515 44 10.310.3Lack of audit staff competenceLack of audit staff competence 1313 55 99

Audit finding not pursued by mgmt.Audit finding not pursued by mgmt. 1111 66 7.67.6

Lack of ex erienced audit staffLack of ex erienced audit staff 1010 77 77

Low grading of position of Head of IALow grading of position of Head of IA 88 88 5.55.5

Negative perception about IANegative perception about IA 55 99 3.43.4



Limited / Lack of IA resourcesLimited / Lack of IA resources 44 1010 2.82.8


35/44

Factors influencing effectiveness of IA in PSEFactors influencing effectiveness of IA in PSEa Malaysian studya Malaysian study

FACTORSFACTORS OccrOccr RankRank %%

Internal audit qualityInternal audit quality9090 11 48.448.4

Support of top managementSupport of top management 4545 22 24.224.2

Adequate resourcesAdequate resources 2525 33 13.413.4

Coo eration from auditeesCoo eration from auditees 1313 44 77

Interaction with auditInteraction with auditcommitteecommittee

1313 44 77




36/44

Efficiency .

Effectiveness..doing the right thing

conomy



Effi i / ff tiEffi i / ff ti


37/44

Efficiency v/s effectiveness measuresEfficiency v/s effectiveness measures

Balanced scorecardsector

Efficiency Effectiveness

Financial resultsFinancial results Channel costs?Channel costs?

Online contributionOnline contribution

(Business value)?(Business value)?

Online contributionOnline contribution

(indirect)?(indirect)?

Profit contributedProfit contributed

Customer ValueCustomer Value Online reach (uniqueOnline reach (uniquevisitors as % of potentialvisitors as % of potentialvisitors)visitors)

Cost of ac uisition orCost of ac uisition or

Sales and sales perSales and sales percustomercustomer

New customersNew customers

cost per salecost per sale

Customer propensityCustomer propensity

Customer satisfactionCustomer satisfactionratingsratings

Operational processesOperational processes Conversion ratesConversion rates

Average order valueAverage order value

Fulfillment timesFulfillment times

Support response timesSupport response times




38/44

Efficienc

Operational efficiencyare things being doner g y

uantum of resources used in erformance

Time & motion study

BPR to improve efficiency




39/44

The 3 EsThe 3 Es

How effective are the operationsright things

Are the operations generating desired results

Operational risks identified and mitigated

Are there any un-identified lost opportunities




40/44

Econom

The main focus of every business

Un-economical operations lead to business

failures

Constant evaluation to identify un-economical


Exe c ut ive Dire c to r, SECPExe c ut ive Dire c to r, SECP4040


41/44

Dos

Maintain objectivity at all times.

Develop your ability to distinguish, but

dont distinguish !

Use management by walking technique.

Be friendly.




42/44

Donts

Dont try be know all type.

Dont recommend a policy measure or aprocedure.just comment !

Dont be confined to your office chamber

Dont try to become a Terror



And last but not the least


43/44

Best Internal Auditor




44/44

!



Documents

Audit by Javed Siddiqui