Knowledge Booklet IV
QUALITY
Internal Audit
REPORTS
Internal Audit Standards Board
The Institute of Chartered Accountants of India
(Set up by an Act of Parliament)
New Delhi
About ICAI and Internal Audit
Standards Board
The Institute of Chartered Accountants of India (ICAI) is a statutory
body established under the Chartered Accountants Act, 1949 to regulate the
profession of Chartered Accountants in India. During its more than six decades
of existence, ICAI has achieved recognition as a premier accounting body not
only in the country but also globally, for it's contribution in the fields of
education, professional development, maintenance of high accounting,
auditing and ethical standards. ICAI is the second largest accounting body in
the whole world.
The Internal Audit Standards Board is one of the important Boards/ Committees
of the Institute, which has been constituted with the prime objective to
reinforce the primacy of the Institute as a promoter, source and purveyor of
the knowledge of internal audit in the country. The basic idea was to enable
the members of the Institute to provide more effective and efficient value
added services related to the field of internal audit so as to enable the clients
to systematize and strengthen their governance process by systematizing
and strengthening their control and risk management process. The Board is
working relentlessly to bring out high quality technical literature in the form
of Standards on Internal Audit and Technical Guides/ Studies/ Manuals, which
constitute an important tool in helping internal auditors to provide effective
and efficient internal audit services to the clients and/ or employers.
02
Contents
Internal Audit Reports04
Important Aspects of Quality Reporting 06
Technology An Important Tool 09
Composition of the Internal Audit Standards Board 2016-17 10
Links for free downloads from ICAI website:
1.Standards on Internal Audit (As on July 1, 2013) http://www.icai.org/
new_post.html?post_id=597&c_id=145
2.Industry Specific Internal Audit Guides (As on January 1, 2015) http://
www.icai.org/post.html?post_id=8916
3.Generic Internal Audit Guides (As on January 1, 2015) http://www
icai.org/post.html?post_id=8918
4.Knowledge Booklets - http://www.icai.org/post.html?postid=11112
03
INTERNAL AUDIT REPORTS
Internal audit reports are, generally, the major tangible output seen from the
work of internal audit. The most important phase of the internal audit process
and the primary means of communication, by which persons outside and inside
the organization are apprised of internal audit's work is issuance of internal audit
report. They provide a good opportunity to integrate total internal auditing efforts
and also an overall basis for appraisal of internal audit work. The basic objective
is to issue reports that will command the attention of the various process owners
who have the responsibilities for the various operational activities, and to persuade
them to take appropriate corrective action. Internal audit reports constitute the
basic evidence about the internal audit activities carried out in an organization
and evaluate the contribution made by them. It is, therefore, extremely important
that internal audit reports should be supported by high quality audit fieldwork.
The form and content of internal audit report would be significantly affected by
the scope of engagement of internal auditor.
Standard on Internal Audit (SIA) 4 "Reporting" issued by the Internal Audit Standards
Board of ICAI specifies that the internal auditor's report should contain a clear
written expression of significant observations, suggestions/ recommendations
based on the policies, risks, controls and transaction processing taken as a whole
and management responses. The process of reporting flows from overall internal
audit objectives, as specified in the appointment letter.
Internal Audit
Report
Work paper Work paper
Summaries Summaries
Work Work Work
Work paper
Paper Paper Paper
Internal Audit Program
Overall Internal Audit Objective(s)
04
SIA 4 "Reporting" lays down that the internal auditor's report should ordinarily
include certain basic elements. An illustrative layout is given below :
(a)Title;
(b)Addressee;
(c) Period of coverage of the Report;
(d) Report Distribution List;
(e) Opening or introductory paragraph;
(i) identification of the processes/functions and items of financial
statements audited; and
(ii) a statement of the responsibility of the entity's management and
the responsibility of the internal auditor;
(f) Objectives/Scope paragraph (describing the nature of an internal audit):
(i) a reference to the generally accepted audit procedures in India, as
applicable;
(ii) a description of the engagement background and the methodology
of the internal audit together with procedures performed by the
internal auditor; and
(iii) a description of the population and the sampling technique used.
(g) Executive Summary, highlighting the key material issues, observations,
control weaknesses and exceptions;
(h) Observations, findings and recommendations made by the internal auditor;
(i) Comments from the local management;
(j) Action Taken Report Action taken/ not taken pursuant to the
observations made in the previous internal audit reports;
(k) Date of the report;
(l) Place of signature; and
(m) Internal auditor's signature with Membership Number.
05
IMPORTANT ASPECTS OF QUALITY
REPORTING
Internal auditor should try to draft a high quality report presenting his audit
findings and recommendations in the best presentable form, so that timely and
relevant information is delivered to key stakeholders. Enhancing the quality of
internal audit report would assist to achieve the objective of internal audit by
providing relevant assurance and contributing to the efficiency and effectiveness
of governance, risk management and control. Internal auditor should share their
perspective/ opinion on the matters that were of most significance in the audit
of the current period. Qualitative internal audit report can further support the
governance role of the audit committee by creating a better link between the role
of the internal audit and the responsibilities of the audit committee and board.
Internal audit report should be compact and easy to read, understandable to a
broad audience and should be compelling and persuasive. It is essential that
irrespective of the nature of the internal audit work or the findings, internal audit
report should be so well drafted that the readers are easily able to scan an audit
finding and take a decision about the corrective steps to be taken. Further, as the
evaluation process involves analysing both satisfactory and unsatisfactory aspects
of the auditee's operations in light of the audit objectives, so mentioning the
auditee's steps in improving controls or correcting errors together with the noted
deficiencies or aspects in need of improvement can add much to the usefulness
of the internal audit report as a management tool. The language used in the
internal audit report should be concrete, descriptive and factual, and it should
communicate a precise message. Further, objectivity in writing report should be
maintained and a self review should be done to ensure that the report is clear,
complete and correct.
Generally, the internal audit reports should be drafted taking into account
requirements of the various types of readers of the internal audit report which,
generally, includes following:
· Board of Directors and Audit Committee
· Senior Management like, CEO, CFO, etc.
· Business Management and Process Owners
· Personnel or Employees tasked with direct implementation of
recommendations
· External Auditors
· Other External Stakeholders, like, Regulators
06
Accordingly, analysis of divergent reader needs and uses would help the internal
auditor to appropriately design their report. In conclusion, while drafting the
report, the internal auditor should consider the logic of auditing, the analysis of
reporting objectives and the analysis of requirement of the readers.
Internal auditor should analyze the following important aspects while drafting
internal audit report:
(a) Most important readers of the internal audit report inside and outside
the organization;
(b) Knowledge of the subject covered in the report by the readers;
(c) Usage of the report by interested readers;
(d) Readers should accept conclusions and results;
(e) Implementation of recommendations that have both short and long
term impact on issue. Accountability for implementation should also
be specified.
Actions to be taken on the basis
of internal audit report
Responsibility for action
Timeline for implemenation of
recommendations
07
SIA 4 mentions that the internal auditor should exercise due professional care
to ensure that the internal audit report, inter alia, is:
(i)clear
(ii) factual Presents all significant matters with disclosure of material facts
(iii) specific
(iv) concise
(v) unambiguous
(vi)timely
(vii)complies with generally accepted audit procedures in India, as applicable.
Internal audit technical skills and the ability to communicate results to people
in a way that will best assure their acceptance and active support form essential
elements of good internal audit reporting. In order to enhance readability, main
message should come first which should then be followed by supporting details
and explanations. Internal auditor should take care of following while drafting
internal audit report so that the methodology and quality of internal audit report
is highlighted to audit committee and other stakeholders:
(i) Using the right tone and language;
(ii) Taking a positive approach, i.e., tone is not critical, judgmental or
unbalanced;
(iii) Writing clearly and concisely;
(iv) Quality of findings in terms of materiality;
(v) Quality of recommendations in terms of impact so that they correct
current conditions and prevent future effects;
(vi) Degree of risks covered by the internal audit plan;
(vii) Root cause analysis of findings which are being carried forward from
previous internal audit reports;
(viii)Rating recommendations as high, medium and low in order to assist
management in assigning priorities. Sometimes, rating as satisfactory,
needs improvement and unsatisfactory is also used by internal auditors;
(ix) Making report user friendly and streamlining contents to eliminate
extraneous or redundant information;
(x) Any organizational/ legal constraint or constraint imposed by time and
resources should be specified in the report;
(xi) Articulating the findings of internal audit and highlighting the risks
impacting the organisation.
08
STYLE
CORRECTNESS
READABILITY
SUBSTANCE
It is suggested that the following devices may be applied while drafting internal
audit report for easier reading:
(a)Summaries
(b)Headings
(c) Topic Sentences
(d)Graphics
TECHNOLOGY AN IMPORTANT TOOL
Technology provides a highly structured and standardized method of reporting
internal audit results as the internal auditor can have quick and easy access to all
internal audit data. The following are some important benefits of using technology:
· Standardized data collection
· Ability to create and condense information
· Impactful visualizations and supporting metrices
· Strategic insights that improve business performance
· Trend analysis, charts, maps
· Ensures consistency
09
Composition of the
Internal Audit Standards Board 2016-17
CA. Mukesh Singh Kushwah, FCA Co-opted Members
Chairman, Internal Audit Standards Board
CA. Anil Kumar Jain, FCA
CA. Anil Satyanarayan Bhandari,FCA CA. Kartik Bharatkumar Radia, FCA
Vice-Chairman, Internal Audit Standards Board
CA. Krishna Kumar T, FCA
CA. M. Devaraja Reddy, FCA
President, ICAI CA. Vipin Gupta, FCA
CA. Nilesh Shivji Vikamsey, FCA CA. Viswanath K, FCA
Vice-President, ICAI CA. Yashwant Jaywant Kasar, FCA
CA. Tarun Jamnadas Ghia, FCA
CA. Mangesh Pandurang Kinare, FCA Special Invitee
CA. Dhinal Ashvinbhai Shah, FCA CA. Shobhit Dwivedi
CA. Babu Abraham Kallivayalil, FCA
CA. K Sripriya, FCA
CA. M P Vijay Kumar, FCA Secretary, IASB
CA. Ranjeet Kumar Agarwal, FCA CA. Jyoti Singh
CA. Sushil Kumar Goyal, FCA
CA. Debashis Mitra, FCA
CA. Shyam Lal Agarwal, FCA
CA. Kemisha Soni, FCA
CA. Sanjiv Kumar Chaudhary, FCA
CA. Sanjay Vasudeva, FCA
Shri Vithayathil Kurian
Shri Vijay Kumar Jhalani
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The Institute of Chartered Accountants of India
`ICAI Bhawan', Indraprastha Marg
P. B. No. 7100, New Delhi - 110 002, INDIA
To know more about Internal Audit Standards Board: visit our website at
www.icai.org, www.icaiknowledgegateway.org or write to us at cia@icai.in
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