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Internal audit findings9/1/2023 What is the definition of a “red” or “unsatisfactory” report, and do all stakeholders interpret a rating the same way?.However, there are several questions to consider: Many companies have attempted to drive clarity in communication by assigning ratings to audit reports. Internal audit (IA) has a unique and important position within companies, entrusted as the eyes and ears of the audit committee, to highlight concerns and report on the operations of the organization.Īudit reporting is one of the most crucial elements of IA and, as such, elicits strong opinions. We will work with this audit finding more in future newsletters.Audit reporting is one of the most crucial elements of Internal Audit, but rating elicits strong opinions. Don’t invest time in crafting full sentences until you are happy with the outline. Also notice that at this point we are not creating full sentences. Notice that the terminology used in the recommendation mirrors or matches the terminology in the condition and cause. Recommendation 2: Admin screens students for eligibility.Recommendation 1: Ensure only eligible students receive free lunch.Criteria: Federal grant requirements say….Cause: Admin not screening for eligibility.Effect: 6 out of 120 students tested were not eligible resulting in $X of questioned costs.Condition: Ineligible students are receiving free lunch.Image of how the elements matchįor example, let’s say that you are auditing a school lunch program and you find that approximately 5% of the kids who receive free lunch are not eligible. To make your argument very clear, use the same terminology in the condition and the cause that you do in the recommendation. In other words, the recommendation must resolve the two problems you raised, both the condition and the cause. One to match the condition and one to match the cause. If you add several conditions, effects, or causes, you will confuse and lose the reader and probably yourself, too! This will keep your audit finding tight and ensure logical organization. For each finding, choose only one sentence to represent each of the elements. Recommendation 2: How do we resolve the cause?.Recommendation 1: How do we resolve the condition?.Criteria: Says who? Who says this is a problem?.Cause: How or why did the condition happen?.Effect: So what? Why should the reader care about this condition? What is the impact?. Condition: What is the problem/issue? What is happening?.What questions do the elements of an audit finding answer for the reader? If you leave an element out, you leave the reader hanging and pondering unanswered questions. The Greeks and the smarty pants at the GAO realized that there are a few key pieces of information that everyone needs to know about an audit issue.Įach of the five elements has a purpose-clears something up for the reader-and should not be left out. In my opinion, this is one of the major weaknesses in the AICPA’s Statements on Auditing Standards … but they didn’t ask me! Why bother with the elements of an audit finding? Strangely enough, the AICPA is silent on what should be included in a management letter comment or as many auditors call them, audit findings. The IIA also recommends that auditors use the elements of an audit finding in order to make audit findings as transparent and convincing as possible. Some smarty pants (and I say that in a complimentary way!) at the GAO (Government Accountability Office) was wise enough to include the elements of a persuasive argument in the Yellow Book (Generally Accepted Government Auditing Standards) and rename them as the elements of a finding. Greek philosophers outlined the elements of a persuasive argument centuries ago. Where did these “elements of a finding” come from? The elements of an audit finding are so core to planning, performing, and reporting on an audit, one newsletter can only scratch the surface on all that needs to be said! In this newsletter, we will just get a sense of what the elements of an audit finding are. Creating a Productive Auditor & Auditee Relationship Bundle.Yellow Book Standards for Performance Auditors Bundle.Yellow Book Standards for Financial Auditors Bundle.Internal Controls Workshop - November 2023.Data to the Rescue: Using Visuals for Better Audit Reports - October 2023.Crypto Hacks, Scandals & Headlines: Governance in Emerging Technology - October 2023.Audit Planning for Performance Audits: A Dialogue with Drummond Kahn - September 2023.Excel Visualizations: Creating, Refining & Customizing Charts - September 2023.Work Smart, Not Hard in Microsoft Word: Complex Reports & Documents - September 2023.
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