Tools & Tales
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Internal Audit of Operations: Episode 09, Triangulation in Purchasing
A typical procurement process follows a structured cycle critical to ensuring operational efficiency and financial integrity. It includes the following steps: Identify – Determine the goods or services needed by the organization. Request – Create a purchase requisition and obtain necessary approvals. Source – Identify, evaluate, and select suppliers; issue RFQ/RFP, review bids, and finalize…
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Internal Audit of Operations: Episode 08, Procurement Process Auditing
Relevant Article: Supply Chain Management, Episode 01, Procurement Process, Simplified The internal audit of the procurement process is a crucial component in evaluating an organization’s financial integrity, operational efficiency, and regulatory compliance. Using the Audit Road Map, auditors begin by identifying the revenue cycle and procurement’s impact on it. Then they consider management’s assertions about…
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Internal Audit of Operations: Episode 07, Run Substantive Testing Procedures
Substantive testing is a key phase in the internal audit process where auditors perform detailed procedures to detect material misstatements in financial accounts. These procedures aim to obtain direct evidence regarding the accuracy, completeness, and validity of transactions. Substantive testing is used in addition to control testing and becomes especially important when internal controls are…
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Internal Audit of Operations: Episode 06, Assess the Effectiveness of Internal Controls
Once an internal auditor confirms that internal controls are adequately designed, the next step is to assess their effectiveness. This means determining whether the controls are functioning as intended, consistently applied, and performed by competent personnel. Auditors seek evidence that the control activities—such as approvals, reconciliations, and segregation of duties—are operating effectively over time. In…
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Internal Audit of Operations: Episode 05, Assess the Adequate Design of Relevant Internal Controls
An Internal auditors may assess whether internal controls across the revenue cycle—from sales orders, credit approval, shipping, billing, revenue recording, to revenue collection—are well-designed to prevent material misstatements. Each stage carries specific risks tied to assertions like occurrence, accuracy, and cutoff. Example: At a logistics firm, the auditor finds that revenue is recorded before shipping…
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Internal Audit of Operations: Episode 04, Perform Risk Assessment of Revenue-related Material Misstatements
Performing a risk assessment is a crucial step in the internal audit of the revenue cycle. The focus is on identifying and evaluating the inherent risk—the susceptibility of an account or assertion to material misstatement assuming no related controls. Revenue-related accounts often carry high inherent risk due to pressures to meet financial targets and the…
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Internal Audit of Operations: Episode 03, Identify Management’s Assertions on Significant Revenue Accounts
One of the critical steps in auditing the revenue cycle is identifying management’s assertions related to significant revenue accounts. These assertions are explicit or implicit claims made by management in the financial statements. Internal auditors evaluate these assertions to determine audit risks and guide audit procedures. The audit risk formula (Audit Risk = Inherent Risk…
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Internal Audit of Operations: Episode 02, Identify Revenue Cycle
A company’s revenue cycle is the sequence of business processes that begins when a customer places an order and ends when the payment is collected and recorded. It includes order entry, credit approval, shipping, billing (invoicing), and cash receipts. This cycle is essential to an organization’s financial health, ensuring that products or services delivered result…
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Internal Audit of Operations: Episode 01, Road Map for Auditing Revenue Cycle
Auditing a company’s revenue cycle is a key responsibility of the internal audit function, as it directly impacts an organization’s profitability and financial reporting accuracy. To ensure a thorough and effective audit, internal auditors follow a structured road map that includes multiple steps designed to assess both control adequacy and financial accuracy. The audit begins…
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Internal Audit Methodologies: Episode 15, Matrix of Assertions & Internal Controls, Example: HR , Employee Engagement and Retention
Employee engagement and retention are critical components of an organization’s HR strategy, helping to foster a positive work environment and reduce turnover. Internal audits in this area ensure that the processes are functioning effectively and align with the organization’s goals. In this essay, we will explore how assertions and internal controls apply to the HR…