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Chapter 24

BUS 426 Chapter Notes - Chapter 24: Financial Statement

Business Administration
Course Code
BUS 426
Michael Favere- Marchesi

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Chapter 24 - Assurance Services: Internal and Government
Nature of Internal Auditing
The Institute of Internal Auditors (IIA): An organization for
internal auditors that establishes ethical and practice standards;
provides education, a professional exam, a profession designation
o Most important qualities of an internal auditor:
Independence and Competence
Standards for the Practice of Internal Auditing: Guidelines
issued by the Institute of Internal Auditors, covering the activities
and conduct of internal auditors
Relationship between Internal and External Auditors
o External can rely on internal auditors if they are found reliable,
which reduces the amount of testing needed and the fees
Internal auditors engage in Operational Auditing: The review of
an organization for efficiency and effectiveness. The terms
“management auditing”, “performance auditing”, and “operational
auditing” are often used synonymously
o Value-For-Money Auditing: A public sector that considers
the efficiency and effectiveness with which an entity’s
operations are conducted
o Effectiveness: The degree to which the organization’s
objectives are achieved
o Efficiency: The degree to which costs are reduced without
reducing effectiveness
Criteria for Evaluating Efficiency and Effectiveness
Historical performance
Engineered Standards
Published standards of criteria
Discussion and agreement
Differences Between Operational and Financial Auditing
Purpose of the Audit
o Financial Auditing: Tries to determine whether historical
information was correctly recorded
o Operation Auditing: Tries to determine effectiveness and
Distribution of the Reports
o Financial Auditing: Goes to uses of financial statements
o Operation Auditing: Goes to management
Inclusion of Non-Financial Areas
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