Tools & Tales
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Internal Audit Methodologies: Episode 03, Understanding Control Risk
Control risk is the possibility that a material misstatement or operational failure may not be prevented or detected in a timely manner due to weaknesses in an organization’s internal control system. Internal auditors assess this risk to determine the extent of testing required and to understand the reliability of existing controls. To understand and document…
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Internal Audit Methodologies: Episode 02, Understanding Inherit Risk
Inherent risk refers to the likelihood of a material misstatement or operational error occurring in an area before considering any internal controls. It is influenced by the nature of the activity, complexity of the process, and external or internal conditions. Here are the key factors that impact inherent risk: 🔹 Complexity of Transactions Highly technical,…
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Internal Audit Methodologies: Episode 01, Applying a General Audit Road Map
Conducting an internal audit involves a structured and systematic approach to evaluating how effectively an organization manages its internal processes and controls. The goal is to provide assurance that activities are properly authorized, accurately recorded, and aligned with organizational policies and objectives. An internal auditor may follow a standardized road map to ensure consistent, comprehensive…
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Internal Audit Function: Episode 20, Material Weakness of Internal Controls
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility a material misstatement will not be prevented or detected in time. The internal auditor must evaluate and report this condition: If a material weakness is identified and not remediated, the external…
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Internal Audit Function: Episode 18, Segregation of Duties
An internal auditor is responsible for assessing the effectiveness of internal controls, and a key control principle is segregation of duties (SoD). SoD helps prevent fraud and error by ensuring that no single individual has control over all aspects of a financial transaction. There are four key functions that must be separated: custodianship of assets,…
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Internal Audit Function: Episode 17, Key Criteria to Assess Audit Evidence
In internal auditing, collecting and evaluating evidence is a cornerstone of the audit process. The value and validity of audit findings depend heavily on the quality of the evidence. Below is an explanation of the four key criteria used to assess audit evidence: A. Sufficiency Definition:Sufficiency refers to the quantity of audit evidence obtained. Explanation:Auditors…
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Internal Audit Function: Episode 16, Management Assertions
Internal auditors play a critical role in evaluating the reliability of financial reporting by testing management assertions. These assertions are representations made by management in the financial statements, serving as the foundation for audit procedures. They fall into two categories: (1) assertions about classes of transactions or events and (2) assertions about account balances at…
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Audit Function: Episode 15, Key Audit Tests of Internal Controls
Key audit tests are vital procedures auditors use to gather sufficient and appropriate audit evidence. These tests are categorized into risk assessment, tests of controls, and substantive procedures. Audit sampling is a practical tool used throughout these phases, enabling auditors to evaluate a subset of data and draw conclusions about the entire population. This improves…
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Audit Function: Episode 14, Internal Controls Considering COSO Framework
The COSO Framework provides a comprehensive approach to evaluating internal controls, focusing on five components: Control Environment, Risk Assessment, Control Activities, Information & Communication, and Monitoring. Audit sampling plays a vital role in testing these controls effectively and efficiently. Control Environment: Auditors assess the company’s ethical values and management’s commitment to integrity. For example, sampling…
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Audit Function: Episode 13, Types of Management Assertions
In auditing, assertions refer to the claims made by management about the accuracy and completeness of financial statements. These assertions guide auditors in designing tests and selecting samples to verify that the financial information is reliable. The main types of assertions include existence, completeness, accuracy, valuation, and rights and obligations. For example, in an internal…