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Internal, Operational, and Compliance Auditing

This chapter described internal, operational, and compliance auditing. To summarize:

  • The Institute of Internal Auditors (IIA) defines internal auditing as an independent, objectiveassurance and consulting activity designed to add value and improve an organization's operations. Ithelps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluateand improve the effectiveness of risk management, control, and governance processes. The IIA'sprofessional standards encompass attributes of internal auditors and performance of the internal auditfunction.

  • An operational audit is the examination of an operating unit or a complete organization to evaluateits performance, as measured by management's objectives. The stages of an operational audit mightbe summarized as definition of purpose, familiarization, preliminary survey, program development,fieldwork, reporting the findings, and follow-up.

  • Compliance auditing involves testing and reporting on whether an organization has complied with therequirements of various laws, regulations, and agreements.

  • The objective of a compliance audit engagement is the issuance of a report on the subject matter oran assertion by management regarding the organization's compliance with specified requirements, orregarding the organization's internal control over compliance with laws or regulations.

  • The objectives of compliance auditing of federal financial assistance programs are (a) to determinewhether there have been violations of laws and regulations that may have a material effect on theorganization's financial statements and major federal financial assistance programs, and (b) to provide abasis for additional reports on compliance and internal controls. Compliance auditing is involved in(a) audits of financial statements in accordance with generally accepted auditing standards, (b) auditsconducted in accordance with GovernmentAuditing Standards, and (c) audits conducted in accordancewith the federal Single Audit Act of 1984.

  • Audits of governmental organizations in accordance with generally accepted auditing standards mustreflect the fact that such organizations are subject to a variety of laws and regulations that may havea direct and material effect on the amounts in the organization's financial statements.

  • In audits in accordance with Government Auditing Standards, the auditors issue a report on thefinancial statements and also report on compliance with laws and regulations and on internal control.

  • Audits in conformity with the Single Audit Act of 1984 are specifically designed to help ensure thatthe billions of dollars in federal financial assistance are appropriately spent. The focus of theseaudits is on organizations receiving significant amounts of federal assistance in a year. The auditorsare required to report on requirements of major programs for which federal assistance has beenreceived.

Describe the functions performed by internal auditors.

Describe the internal auditors' role with respect to the Sarbanes-Oxley Act.

Identify the standards for the professional practice of internal auditing.

Explain the nature and the purpose of an operational audit.

Distinguish among the various types of compliance audits.

Describe the auditing and reporting requirements of Government Auditing Standards and the Single Audit Act.

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