Echo Seminar on Report Writing - Day 1

“Writing Better Audit Reports!”

a 2-day Seminar for Internal Auditors

June 29-30, 2007

Facilitated by:

Junn E. NicanorInstitute of Internal Auditors -

Philippines

Detailed Course Outline (Day 1)

• Module I - Revisiting the Standards on Communicating Results• Module II - The Internal Audit Report & The Writing Process• Module III - Purposes & Importance of Audit Reports• Module IV - Quality Standards of An Internal Audit Report• Module V - The Value & Cost Components of An Internal Audit

Report• Module VI - Report Writing Time vs Auditing Time,

Scheduling Report Writing Time & Causes of Writer’s Block

• Module VII - Techniques to Overcome Delays & Barriers in Report Writing

• Module VIII - Five Attributes of Audit Findings• Module IX - How to Gather and Organize Data for Audit

Reports• Module X - Guides to Preparation of Audit Reports and

Auditing Information Needs of Management• Module XI - Qualities of Useful Auditing Information


• Module XII - Writing to Inform• Module XIII - Writing to Persuade• Module XIV - How to Organize and Present Audit Findings,

Conclusions and Recommendations• Module XV - Organizing & Formatting Audit Reports • Module XVI - Presenting Results to Management & the Audit

Committee• Module XVII - Using Effective Style• Module XVIII - Writing Concisely• Module XIX - How to Review and Edit Audit Reports

THE IIA STANDARDS FOR COMMUNICATING RESULTS

Module I

Reports are the output of the audit process.

Standard 2400Internal auditors should communicate the results promptly.

Detailed Standards Practice Advisories

2410 Criteria for CommunicatingCommunications should include the engagement’s objectives and scope as well as applicable conclusions,recommendations, and action plans.

1. Although audit report format and contentmay vary by organization or type of audit, they should contain, at a minimum, the

purpose, scope, and results of the engagement

1. Engagement final communications may include background information and summaries.

1. Purpose statements should describe the engagement objectives.

1. Scope statements should identify the audited activities, including time and period audited and activities not audited.

1. Results should include findings, conclusions, recommendations and action plans.


2410.C1Communication of the progress and results of consulting engagements will vary in form and content Depending upon the nature of the engagements and needs of the client.


2410 Criteria for CommunicatingCommunications should include the engagement’s objectives and scope as well as applicable conclusions, recommendations, and action plans.

• Observations are pertinent statements of facts.

Those findings necessary to support or prevent misunderstanding of the internal auditor’s conclusions and recommendations should be included in the final engagement communications.

Less significant observations or recommendations may be communicated orally or through informal correspondence.

7. Engagement observations emerge by a process of comparing “what should be” with “what is”.

Observations and recommendations should be based on the following attributes: CRITERIA, CONDITION, CAUSE, EFFECT.



2410.A1The final communication of results should, where appropriate, contain the internal auditor’s overall opinion.

• Conclusions (Opinions) are the internal auditor’s evaluations of the effects of the observations and recommendations on the activities reviewed.

They usually put the findings in perspective based upon overall implications.

Engagement conclusions, if included in the engagement report, should be clearly identified as such.

Conclusions may encompass the entire scope of an engagement or specific aspects.

They may cover but are not limited to whether the operating or program objectives and goals conform with those of the organization, whether the organization’s objectives are met, and whether the activity under review is functioning as intended.



2410.A2Engagement communications should acknowledge satisfactoryperformance.

1. Engagement communications should include recommendations for potential improvements and acknowledge satisfactory performance for corrective action. Recommendations are based on the internal auditor’s observations and conclusions.

They call for action to correct or improve existing conditions.

May suggest approaches to correcting or enhancing performance.

May be general or specific.

10. Engagement client accomplishments (improvementssince the last engagement) or the establishment of a well – controlled operation, may be included in the

engagement final communication.

- This may be necessary to fairly represent the existing conditions; to provide a proper perspective / appropriate balance to the engagement final engagement.



2410.C1Communication of the progress and results of consulting engagements will vary in form and content depending upon the natureof the engagements and needs of the client.

1. The engagement client views about engagement conclusions and recommendations may be includedin the engagement communications.

12. As part of the internal auditor’s discussions with the engagement client, the internal auditor should try to obtain agreement on the results of the engagement and on the plan of action to improve operations as needed.

If they disagree about the engagement results, the engagement communications may state both positions and the reasons for the disagreement.

The engagement client’s written comments may be included as an appendix to the engagement report.

Alternatively, the engagement client’s views may bepresented in the body of the report or cover letter.



2410.C1Communication of the progress and Results of consulting engagements will vary in form and content depending upon the nature of the engagements and needs of the client.

1. Certain information may not be appropriate for disclosure to all report recipients because it is privileged, proprietary or related to improper or illegal acts. Such information, however, may be disclosed in a separate report.

1. Interim reports may be written or oral and may be transmitted formally or informally.

- Communicate information that requires immediate attention

- Communicate a change in engagement scope for the activity under review to keep management informed of engagement progress when engagements extend over a long period.

The use if interim reports does not diminish or eliminate the need for a final report.



2410.C1Communication of the progress andresults of consulting engagements will vary in form and content depending upon the nature of the engagements and needs of the client.

1. A signed report should be issued after the engagement is completed.

- Summary reports highlighting engagement results may be appropriate for levels of management above the engagement client.

- May be issued separately from or inconjunction with the final report.

- “Signed” means that the authorized internalauditor’s name should be manually signed in the report. Alternatively, the signature may appear on a cover letter. The internalauditor authorized to sign the report shouldbe designated by the chief audit executive.

- If engagement reports are distributed byelectronic means, a signed version of thereport should be kept on file by the internalaudit activity



2420 Quality of CommunicationsCommunications should be accurate,objective, clear, concise, constructive, complete and timely.

1. Accurate communications are free from errorsand distortions and faithful to underlying facts.

The manner in which the data and evidence isgathered, evaluated and summarized forpresentation should be done with care andprecision.

1. Objective communications are fair, impartial and unbiased and are a result of a fair-mindedand balanced assessment of all relevant factsand circumstances.

- Observations, conclusions, and recommendations should be derived and expressed without prejudice, partisanship, personal interests, and the undue influence of others.

• Clear communications are easily understood and logical. Clarity can be improved by avoidingunnecessary technical language and providingall significant and relevant information.



2420 Quality of Communications

Communications should be accurate, objective, clear, concise, constructive, complete and timely.

1. Concise communications are to the point and avoidunnecessary elaboration, superfluous detail, redundancy and wordiness.

1. Constructive communications are helpful to the engagement client and the organization, and lead toimprovements when needed. The contents and tone of the presentation should be useful, positive and well-meaning and contribute to the objectives of the organization.

1. Complete communications are lacking nothing that isessential to the target audience and include all significant and relevant information and observations to support recommendations and conclusions.

1. Timely communications are well - timed, opportune,and expedient for careful consideration by those who may act on the recommendations. The timing of the presentation of engagement result should be setwithout undue delay and with a degree of urgency andso as to enable prompt, effective action.



1 Errors and Omissions

If a final communication contains a significant error or omission, the chief audit executive (CAE) should communicate corrected information to all individuals

who received the original communication.

1. If It is determined that a final engagement communication contains an error, the CAE should consider the need to issue an amended report which identifies the information being corrected. The amended engagement communications should be distributed to all individuals who received the engagement communications being corrected.


1. An error is defined as an unintentional misstatement or omission of significant

information in a final engagement communications.


2440 Disseminating Results

The CAE should disseminate results to the appropriate individuals.

2440.A1

The CAE is responsible for communicating the final results to individuals who can ensure that the results are given due consideration.

1. Internal auditors should discuss conclusions andrecommendations with appropriate levels of management before issuing final engagementcommunications.


1. Discussion of conclusions and recommendations isusually accomplished during the course of theengagement and/or at post-engagement meetings(exit interviews). Another technique is the review of draft engagement issues, observations andrecommendations by management of the audited activity.

1. Although the level of participants in the discussionsand reviews may vary by organization and by thenature of the report, they will generally include those individuals who are knowledgeable of detailed operations and those who can authorize the implementation of corrective action.



The CAE should disseminate results to the appropriateindividuals.

2440.A1

The CAE is responsible for communicating the final results to individuals who can ensure that the results are given due consideration.

1. The CAE or designee should review and approve the final engagement communications before

issuance and should decide to whom the report will be distributed.

- CAE should approve and may sign all final reports. If specific circumstances warrant, consideration

should be given to having the auditor-in-charge, supervisor, or lead auditor sign the report as a representative of the CAE..




The CAE should disseminate result to the appropriate individuals.

2440.A1

The CAE is responsible for communicating the final results to individuals who can

ensure that the results are given due consideration.


1. Final engagement communications should bedistributed to those members of the organization who are able to ensure that engagement results are given due consideration.

- The final engagement communications should bedistributed to management of the activity under

review.

- Higher-level members in the organization mayreceive only a summary communication.

- May also be distributed to other interested or affected parties such as external auditors and the board.


Standard 2500The CAE should establish and maintain a system to monitor

the disposition of results communicated to management.

THE IIA STANDARDS FOR COMMUNICATING

RESULTS


2500 Monitoring Progress

The CAE should establish and maintain a system to monitor

the disposition of results communicated to management.


1. The CAE should establish procedures to include the following:

A time frame within which management’s response to the engagement observations andrecommendations is required.

A verification of the response (if appropriate)

A follow-up engagement (if appropriate)’

A communication procedure that escalatesunsatisfactory responses / actions, including theassumption of risk, to the appropriate levels of management.



The CAE should establish and maintain a system to monitor the disposition of results communicated to management.


1. Certain reported observations and recommendationsmay be so significant as to require immediate actionby management. These conditions should bemonitored by the internal audit activity until correctedbecause of the effect they may have on theorganization.

1. Techniques used to effectively monitor progressinclude:

Addressing engagement observations andrecommendations to the appropriate levels ofmanagement responsible for taking corrective action.

Receiving and evaluating management responses toengagement observations and recommendationsduring the engagement or within a reasonable timeperiod after the engagement results are communicated. Responses are more useful if theyinclude sufficient information for the CAE to evaluatethe adequacy and timeliness of corrective action.



The CAE should establish and maintain a system to monitor the disposition of results communicated to management.


1. Techniques used to effectively monitor progress include:

Receiving periodic updates from managementin order to evaluate the status of management’s efforts to correct previously communicated conditions.

Receiving and evaluating information from other organizational units assigned responsibility for procedures of a follow-up

or corrective nature.

Reporting to senior management or the board on the status of responses to engagement observations and recommendations.


2500.A1

The CAE should establish a follow- up process to monitor and ensure that management actions have been effectively implemented or that senior management has accepted the risk of not taking action.

1. Internal auditors should determine that correctiveaction was taken and is achieving the desired results, or that senior management or the board

has assumed the risk of not taking corrective action on reported observations.


1. Follow - up by internal auditors is defined as a process by which they determine the adequacy,

effectiveness, and timeliness of actions taken by management on reported engagement observations and recommendations, including those made by external auditors and others.


2500.A1

The CAE should establish a follow -up process to monitor and ensure that management actions have been effectively implemented or that senior management has accepted the risk of not taking action.


1. Responsibility for follow-up should be definedin the internal audit activity’s written charter.

The nature, timing and extent of follow - up should be determined by the CAE. Factors to consider:

- the significance of the reported observation or recommendation

- the degree of effort and cost needed to correct the reported condition

- the impact that may result should the corrective action fail

- the complexity of the corrective action

- the time period involved


2500.A1

The CAE should establish a follow -up process to monitor and ensure that management actions have been effectively implemented or that senior management has accepted the risk of not taking action.

1. There may also be instances where the CAE judges that management’s oral or written response shows that action already taken is sufficient when weighed against the relative importance of the engagement observation or recommendation. On such occasions, follow- up may be performed as part of the next

engagement.


1. Internal auditors should ascertain that actions taken on engagement observations and recommendations remedy the underlying conditions.

1. The CAE is responsible for scheduling follow -up activities as part of developing engagement work schedules. Scheduling of follow - up should be based on the risk an exposure involved, as well as the degree of difficulty and the significance of timing in implementing corrective action.

THE IIA STANDARDS FOR COMMUNICATING RESULTS


Standard 2600When the CAE believes that senior management has accepted

a level of residual risk that is unacceptable to the organization,the CAE should discuss the matter with senior management. Ifthe decision regarding residual risk is not resolved, the CAEand senior management should report the matter to the board

for resolution.

Questions we need to ask ourselves as

Internal Audit Practitioners….

• What is the value of the IA Report?• How much do you think each audit report is likely to cost

your organization?• How do you measure what management is getting in

return for that price?• What steps do you take to make sure each report fits

senior management’s needs?• What quality-control steps do you have in place to

guarantee that you are producing the best report possible?

The Internal Audit Report

• your most powerful tool• plays a unique & influential role• regularly submitted to senior management, BOD &

the Audit Committee• includes change initiatives, attention to high-risk

areas, evaluation/assessment results of the quality of systems & procedures

• helps management decide on directions, strategies and priorities

• the main product auditors produce

Module II

Report Writing is:

• A PROBLEM

• AN OPPORTUNITY

• A PROCESS

Report Writing: A problem

Why writing is Difficult to Many?

• Honestly misguided• Ideas thought of not clear enough• Trying to impress others• Trying to conceal a weak material

Report Writing: An Opportunity

• The auditor’s ability to write will spell the difference in his performance.

• Audit reports play a unique and influential role in your organization:– Include recommendations for changes in procedures and

standards– Calls attention to high-risk areas– Reports your evaluation of the quality systems and procedures

• Based on audit reports, management decides on directions, strategies and priorities,

Report Writing: A Process

• Both mental and physical process

• Starts at the beginning of the audit assignment and ends with the submission of the final audit report

• Writing the audit report should be done throughout the audit process

Purposes of the Audit Report

• INFORM• PERSUADE• GET RESULTS

Module III

What do you think are the purposes of an Audit Report?

Purposes of the Audit Report

• INFORM– What the current situation is– What should have happened– What was / has been done– What the future scenario is

• PERSUADE– Why something has to be done– So what if we do nothing

• GET RESULTS– What is to be done– Who will do it– When to do it or Timetable to have it done– How to do it

• To the Auditors themselves• To Operating Management• To Top Management• To the Organization’s Outside or External Auditors• Government Regulators or Courts

To whom are audit reports important?

Why Audit Reports are Important to Auditors?

• Summarize the purposes, scope and results of audit work

• Stimulate action to strengthen controls• Facilitate teaching and training of audit staff members• Facilitate auditor performance evaluation• Facilitate audit follow-up

Why Audit Reports are Important to Operating Management?

• Stimulate action toward necessary improvements by

serving as a plan of action.• Means of gaining support for issues that require

attention of higher management.• Serve as window s into operations for busy operating

managers.

Why Audit Reports are Important to Top Management?

• Provide details about operations and controls not

contained in other reports

• Provide objective information on audit activities,

permitting management to judge if the more important or

higher risk affairs are being audited.

• Provide information that may not reach top management

• Promote disciplined operations

Why Audit Reports are Important to External

Auditors?

• Important source of information for external auditors

– Help them evaluate the extent to which internal audit work can be relied on for segments of their examination

– Can alert auditors to special problems and help them avoid duplication of work

Why Audit Reports are Important to Others?

• Help provide assurance to regulatory agencies regarding practices of interest to them.

• DIRECT

• CONCISE•

APPROPRIATE• PERSUASIVE

Module IV

Quality Standards of Internal Audit Reports

• CONSTRUCTIVE

• RESULT-ORIENTED

• INVITING• TIMELY

• Direct – straightforward and factual presentation of results attained thru:– Conclusive opening sentences– Information headings, and– Presentation of main points first.

• Concise – brief statements, capsulizing key ideas– Limited detail– Selection of items of greatest significance– Summaries of supporting data

• Appropriate– Know the readers’ interests– Select the proper emphasis, and– Present relevant and valid information


• Persuasive– Convincing support for conclusion– Effects of conditions described, and– Quantification of impact

• Constructive– Causes of problems– Balance of positive & negative, and– Credit for management or audit customer’s action

• Results-oriented– Measurable specific recommendations– Practical, action-oriented solutions– Description of management action taken


• Inviting– Executive Summaries– Professional format, and– Brief & Clearly labeled

• Timely– Immediate presentation to line management – Interim reports for serious issues, and– Strict enforcement of standards of timeliness


“Develop and meet the quality goals but control the cost of achieving the standards. You create the greatest value, balancing the investment with the payback.”

Module V

Cost Components of Internal Audit Reports

Cost Components of Internal

Audit Reports

• Analytical Costs

• Administrative Costs

• Agreement Costs

Cost Components of Internal Audit Reports

• Analytical Costs– Time required to complete the audit, including planning, fieldwork,

and development / presentation of conclusions.

• Administrative Costs– Time required to issue reports, including development of

reporting standards, definition of formats & the training / instruction provided to staff; complete production, including composing the report, management review and editing, typing, proofreading, and copying.

• Agreement Costs– Time to present the report, agree on solutions, and follow-up

any unresolved items after the report is issued.

THE BASIC EQUATION OF VALUE

VALUE = QUALITY - COST

GOAL:Keep quality ratings high,

Control costs,especially Admin. Cost.

Balancing……..the Cost & Quality of Reporting

• Cost Components

– Analytical• Planning• Fieldwork

– Administrative• Composing / Encoding• Reviewing / Editing• Printing / Proofreading

– Agreement• Presentation / Exit Conference• Solutions / Audit Customer’s

Feedback & Commitment• Follow-up / Updates

– Directness– Succinctness

– Appropriateness– Persuasiveness– Printing / Proofreading

– Orientation towards Results– Inviting Look & Sound– Timeliness

Timeliness & Qualityof the Audit Report

isthe DIRECT RESULT

of thePROCESS

used forWriting.

Getting started: Writing the First DraftAuditing Time v.s. Report Writing Time

• Tendency for more time auditing to arrive at results

• Tendency for less time report writing & editing to get those results published

Module VI

GOAL: Strike a balance!

Getting started: Writing the First Draft

Scheduling Writing Time

• Staff members argue that there is not enough time for report writing

• Managers argue that too much time is spent writing and reviewing reports.

GOAL: Strike a balance!

In Getting Started orWriting the First Draft………

What do you think are the Causes ofWriter’s Block other thanTime Element?

Getting started: Writing the First Draft

2 Causes of Writer’s Block

(other than Time Element)

• Procrastination– Self-imposed delay– Not knowing where to start– Having other things to do– Not able to schedule time with the boss

• Perfectionism– Prevents writers from getting started– Afraid of making mistakes– Insists on writing the report from start to finish without revision

Outcome:

• Quality of reports below par

• Too much manager’s time reviewing and correcting report draft.

WE CANNOT AFFORD THESE!

How to break this Syndrome?

• Change in Thinking

• Change in Process of Writing

Techniques which can help overcome delays & barriers

in producing quality & timely reports.

• Write along the way• Use standard components & frameworks to

structure your thoughts• Check for the agreement on substance & strategy• Compose the full report quickly and polish the final

report

Module VII

Writing Along the Way

– A typical work paper summary – outlining objectives, summary of testing, and conclusion – is designed for ease of reviewing test results.

Paradigm Shift:

– Build a different kind of summary serving a dual purpose – documenting results and providing material for the report.

Writing Along the Way1st Step in Writing……………is one of generating ideas

Dumping Ideas Worksheet:

Writing Along the Way1st Step in Writing……………is one of generating ideas

Planning Worksheet

Sample of Completed Planning Worksheet:

Topic or Section:Non-Moving Trade Receivable Accounts

Conclusion or Key Message:No adequate supports are found in the A/R jackets.

Key Points Supporting the Conclusion:-30 of 40 files tested (75%) have no evidence of customers’ acknowledgment (invoices or equivalent not signed).-10 of 40 files testes (25%) have no documentation on file.-value of missing invoices was PhP800K

Planning Worksheet

Sample of Completed Planning Worksheet:

Action to be Taken:Implement the SOP of securing customers’ acknowledgment on the face of the invoice for services rendered.

Preferred Impression to Convey to Reader:If a case is pursued considering these are non-moving accounts, the company does not stand a chance in court and will not be able to collect.

The amount of these outstanding trade receivables is at risk.

Standard Components of Most Audit Reports(5 Elements or Attributes of Audit Comments /

Findings)

• Condition• Criteria• Cause• Effect• Recommendation

Module VIII

Standard Components of Most Audit Reports

(5 Elements or Attributes of Audit Comments / Findings)

• Condition – (What is…..?)

• Criteria – (What should be…?)

• Cause – (Why the condition exist?)

• Effect – (So what……..?)

• Recommendation – (How to make it better?)



• Condition– Factual statement of the problem found– What actually exists?– It tells what is happening now or in the past.

• Criteria– a Standard

• (established by management, industry practice, common sense, accounting principles, etc.)

• formalized in policy and procedure manuals, employees handbooks, authoritative literature or guidelines

• More often not so clear cut or well defined or documented

– What should exist



• Cause– Most important of the 5 attributes– Most often overlooked– Why does the condition exist?– Why did it happen?

It is only when we identify the root cause of the conditions that our work will have a lasting value.

• Effect– So what if we do nothing– What’s the result if we don’t follow the procedures?– What’s the implication or impact?



• Recommendation– States what can be done to improve the situation– What should be done to correct the cause (not correct

the condition)– Must eliminate or address the cause– Must be practical, logical and cost effective– Should be developed in cooperation with management

Use Standard Components to Structure your Thoughts

Reports – normally is standard. Format or structure

(e.g. Peter’s Matrix format, standard report format for banks).

Use known elements & organizational patterns upon documentation of ideas during fieldwork.

Peter’s Matrix Format

CONFIDENTIAL

Auditee : Report No. :

Audit Date: Report Date :

Audited by: Discussion Date:

Discussed with :

What is…. What should be…. So What… Action Taken

(The present situation) (Recommendation / Ideal Situation) (If we do nothing) (Audit Customer’s Feedback / Commitment)

Standard Report Format for Banks

• Executive Summary Headings– Addressee

– Subject

– Date

• Business• Scope• Conclusion• Recommendations

Check of Agreement on Substance & Strategy

• Evaluate the substance to ensure agreement on key points before

presentation to line management• Evaluate the strength of data supporting the statement of condition• Determine if that statement reflects the appropriate emphasis• Improve brainstorming on more persuasive items such as Effect &

Recommendation• Field auditor & supervisor agree on these outlines

Compose the Full Report Quickly & Polish the Final Report

• Takes a half day to a maximum of 1 day only• A phase which should be completed quickly• Final Steps of Composition:

– Organizing the comments

– Consolidating related items

– Writing a Summary & Conclusion

– Editing for Style & Clarity

– Formatting for a Professional Presentation

Data Gathering & Organization

• An essential step in the proper conduct of audit• Quality of data determines the quality of audit report• Well-planned data gathering process and a

systematic application of data gathering techniques would result to the development of sound audit conclusions and

recommendations.

Module IX

Pointers in Data Gathering

• Plan data gathering systematically• Fit data gathering schedule with operations people• Talk to people in operations• Avoid projecting an expert image• Ensure that data gathered are complete & accurate (& authentic)• Record both facts and interpretation of facts• Use charts, diagrams, flowcharts and other devices to summarize

data

Preparing the Audit Report

• Determine the purpose of the audit report• Identify the main recipient or reader of the audit

report• Prepare a report outline• Use talking captions instead of topic captions

Module X

Preparing the Report Outline

• Report title or subject matter– Must make the reader want to read the report

– Must show the importance and benefit of reading it

• Topics discussed by captions– Topic Caption

• A word / phrase that identifies the topic / area of discussion

– Talking Caption• Identifies the subject matter and indicates what is to be said about

the subject. More effective and useful in writing the narrative of the report.

• Arrange topics in order of importance

Topic Caption

• Cash

• Accounts Receivable

• Fixed Assets

• Travel Advances

Talking Caption

Cash shortages

Delinquent Accounts Receivable

Unproductive Fixed Assets

Long Outstanding Travel advances

Writing the First Draft

How and when you compose the draft,

organize research data, and

begin the review of the draft report

by line and audit management

influence your ability to write

the highest quality report

in the shortest amount of time.

Auditor’s Logic

– What is the control?– How should it be tested?– How well is the control

working?– What exceptions or control

weaknesses exist?– What should be done?

Reader’s Logic

– What are the results?– What are the problem?– How big is the problem?– Why does it happen?– How did this happen?– What has been done or will

be done to correct this?

Incorporate Report Writing Into the Audit Process

• Phase One: Planning & Fieldwork

– Write the objective and scope

– Use Dumping and Planning Worksheets to gather information

– Complete Audit Comment Worksheet

– Review substance of audit comments using the Worksheets

– Present the outline of audit comments to line management

– Decide on overall organization of report

• Phase Two: Report Production

– Write report draft, including summary and conclusion

– Edit for style, conciseness and clarity

– Present final report to management

Auditing Information Needs of Management

• Accuracy & reliability of accounting and operation data (assurance/finl audit)

• Resources of the organization are adequately safeguarded against waste, fraud & inefficiency (operations audit)

• Operating Departments’ compliance with prescribed policies and procedures (compliance audit)

• Operational efficiency (OA)• Risk areas and problems in operation & solutions to address these

risks (Risk-Based Auditing)• Opportunities for improving operations & courses of action to take

advantage of opportunities

Qualities of Useful Audit Information:

• Accuracy• Clarity• Conciseness or Brevity• Comparability• Timeliness• Relevance• Good Organization

Module XI

ACCURACY

• Information is accurate if…….

– Factual, not exaggerated

– Can be proven with evidence

– Can be demonstrated logically

• May be absolute or relative

• Can be developed thru effective systems & procedures, sound judgment, & scientific data-gathering

Degrees of Accuracy

Absolute Accuracy

Example: The cash shortage of Employee Y is PhP5,125.75. This is 10% of total cash handled.

(Accountability purposes)

Relative Accuracy

Example: The average monthly sales of Product A in 1999 is about PhP10 Million. It is expected to increase by

25 % in 2000.

(Planning / Budget purposes)

Examples of Absolute Accuracy

Status of Units Portfolio

• 11 accounts were fully paid and not renewed

• 2 accounts turned past due totaling PhP20.445M were endorsed to legal.

Missing Documents

• SSC of 9 accounts and 4 dormant accounts with a total balance of $41K and $5K respectively were missing.

CLARITY

Information is clear if…….

• Message is received as intended• Ideas interpreted as intended

Clarity could be attained through

• Right choice of words• Effective Sentence & Paragraph construction• Well-organized ideas and information• Use of appropriate format

CONCISENESS / BREVITY

Information is concise if…….

• Not too much nor too little• Enough is enough• Direct to the point• Lengthy explanations presented in annexes and schedules

Clarity could be attained through

• KISS formula– Easy to read and write

– One major idea in a sentence

– “Meat Cleaver” technique

Subject: Process of Audit of Loan Portfolio

Sample Recommendation:

• Ensure that documents needed prior to renewal of credit lines were submitted earlier by clients in order to process renewal 60 days prior to line expiry to make sure that approval could be obtained 30 days prior to line expiry to avoid delays in documentation.

Delay in renewals may disrupt line continuity particularly those credit lines secured by REM. Line continuity should be strictly observed since existing REM is extinguished if line is renewed. A new mortgage should be executed if line will be reinstated.

Question: Needs improvement or not? Clear? Concise?




• Glaring lapses:– Use of redundant words or phrases in one sentence

– Running sentence

– Jargon of words

– Use of unnecessary phrase

– Not concise nor direct to the point

• Effect– Message not clear enough




Suggested:

• Ensure client’s submission of documents needed for credit lines renewal not later than 60 days prior to line expiry. This is to obtain approval at least 30 days before it expires.




• Line continuity should be strictly observed since existing REM is extinguished if line is not renewed. A new mortgage should be executed if line will be reinstated.

Noted grammatical error:– Tense not consistent nor parallel.




• Line continuity should be strictly observed since existing REM is extinguished if line is not renewed. A new mortgage should be executed if line would be reinstated.

COMPARABILITY

Information compared with related information is given meaning and significance.

Types of Comparison

• Comparison with past (growth trend, progress)• Comparison with plan (performance evaluation)• Comparison with potential (extent of improvement still possible)• Comparison with competition (comparative performance with others)

TIMELINESS

Information is timely if…….

• Given to user when needed; otherwise, its value is diminished.

“ Delayed report means delayed action.”

RELEVANCE

• Entire Report– Information / conclusions / recommendations useful to users

• Parts of Report– Ideas or facts presented support entire report

Test of Relevance:

What happens if the information is not presented in the report?

ORGANIZATION

• Is there an overview / conclusion?• Put everything reader must know into the early paragraphs• Use the 5W’s of journalism:

– Who

– What

– When

– Where

– Why

• Organize the rest of the information either in– Order of importance

– Logical order

– Chronological order

INTERNAL AUDIT REPORT

REVIEW CHECKLIST

Report title: Type of Audit:

Field Auditor: Date submitted for Review:

Reviwere Date of review:

CRITERIA RATING COMMENTS

INADEQUATE(65% & BELOW)

MARGINAL(66% - 74%

SATISFACTORY(75% - 85%)

VERY GOOD(86% - 95%)

EXCELLENT(96% - 100%)

ACCURATE - Engagement report is free from errors and distortions and are faithful to underlying facts

OBJECTIVE – It is impartial, fair and unbiased and is the result of a fair-minded and balanced assessment of all relevant facts and circumstances.

CLEAR – Engagement report is easily understood and logical. The report avoid unnecessary use of technical language and provides significant and relevant information.

CONCISE - are to the point and avoid unnecessary use of technical language and provides significant and relevant information.

CONSTRUCTIVE - The tone and content of the report are useful, positive, and well-meaning and contribute to the objectives of the organization.

COMPLETE – Includes complete communications to ensure that nothing essential to the target audience is missed out. It should include all significant and relevant information and observations to support recommendations and conclusions.

TIMELY – well-timed, opportune, and expedient for careful consideration by those who may act on the recommendations. The timing of the presentation of engagement results are set without undue delay and with a degree of urgency and so as to enable prompt, effective action.

CRITERIA WEIGHTTotal items for consideration

A

No. of items of consideration not found in the report

B

RATING(A-B/A)

C

RATING(C* CRITERION WEIGHT)

ACCURATE (20%) 20

OBJECTIVE (15%) 3

CLEAR (10%) 24

CONCISE (10%) 5

CONSTRUCTIVE (15%) 10

COMPLETE (15%) 16

TIMELY (15%) 3

TOTAL


• Module XII - Writing to Inform• Module XIII - Writing to Persuade• Module XIV - How to Organize and Present Audit Findings,

Conclusions and Recommendations• Module XV - Organizing & Formatting Audit Reports • Module XVI - Presenting Results to Management & the Audit

Committee• Module XVII - Using Effective Style• Module XVIII - Writing Concisely• Module XIX - How to Review and Edit Audit Reports