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Sample Scope and Limitation Report Writing - PDF

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					Internal Audit
Report Writing




Faculty: CA Ravi Harihara Iyer
 Evolution of Internal Auditing




Traditional to………….....…………..Technology centric mind-
set
                         Agenda
ICAI Standards on Internal Audit (SIA)

    SIA 4 – Reporting

Internal Audit Report Writing
       IA Report Writing Objective


                Inform




              Action



Persuade                      Record
ICAI – Standards on Internal Audit
•   SIA 1 – Planning an Internal Audit
•   SIA 2 – Basic Principles Governing Internal Audit
•   SIA 3 – Documentation
•   SIA 4 – Reporting
•   SIA 5 – Sampling
•   SIA 6 – Analytical Procedures
•   SIA 7 – Quality Assurance in Internal Audit
•   SIA 8 – Terms of Internal Audit Engagement
•   SIA 9 – Communication with Management
•   SIA 10 – Internal Audit Evidence
•   SIA 11 – Consideration of Fraud in an Internal Audit
•   SIA 12 – Internal Control Evaluation
•   SIA 13 – Enterprise Risk Management
•   SIA 14 – Internal Audit in an IT Environment
•   SIA 15 – Knowledge of the Entity and its Environment
•   SIA 16 – Using the Work of an Expert
•   SIA 17 – Consideration of Laws and Regulations in an Internal Audit
                        SIA 4 – Reporting
     f Standard       Establish standards on the form and content of the internal
                      auditor‘s report.
Basic elements of     Layout of the internal audit report includes:
the audit report      • Titles, Addressee, Report distribution list,
                      • Period of coverage of the report, Opening or introductory
                        paragraph, Objectives paragraph, Scope paragraph,
                      • Executive summary, Observations, findings and recommendations,
                      • Action taken report
                      • Date of the report, place of signature and Membership number.
Auditor should        Ensure that internal audit report is :
excise due            • Clear and Factual,
professional care     • Specific and Concise,
                      • Unambiguous and Timely,
                      • Complies with generally accepted audit procedures in India.
Communication to      Different stages of communication are:
management            • Discussion of draft,
                      • Exit meeting,
                      • Formal draft
                      • Final report
Limitation on scope   • Describe the limitation
and restriction on    • For intended purpose and limited to distribution list
usage & circulation
          Internal Audit Report Readers
•   Audited unit
       Management of the audited unit
       Executives responsible for the audited unit
       Process owners

•   Larger organization
        Executives in the organization
        CAE and IA function
        Board / Audit Committee

•   External Auditors


     Readers are at various levels with different purposes,
                     needs and usage time
5 Cs?
            5 Cs – Report Writing Toolkit
Component     Description
Condition     Statement of the issue :
              What is the key point you want to communicate to your readers?

              E.g. Capital expenditure of Rs. 10.8 crores for the hospital equipment
              upgrade project were not monitored, and time and budget overruns were
              not approved

Criterion     Description of What Should Be:
              What is the policy, standard, principle or business practice you are
              evaluating?

              E.g. Finance policy requires continuous monitoring by the project manager
              and VP approval of capital expenditure over Rs. 2 crores

Consequence   Explanation of the Significance or Impact:
              What is the impact or materiality? What has gone or could go wrong
              as a result of the condition?

              E.g. The equipment upgrade project was over budget by 30% and the
              contractors paid no penalties
                                                                                   10
         5 Cs – Report Writing Toolkit
Component    Description

Cause        Explanation of What Allowed the Condition to Occur :
             What is the root cause of the problem ? Why was the condition
             not detected or corrected?

             E.g. A project manager had not been appointed to manage the
             hospital equipment upgrade project



Corrective   Description of action Necessary to Correct the Condition:
Action       What is the policy, standard, principle or business practice you
             are evaluating?

             E.g. The Finance manager will require a VP’s written approval of all
             capital expenditure project plans, monthly reports and cost overruns.
             The VP will appoint a project manager for each capital expenditure
             project
                                                                              11
Sample Comment Sheet

Heading

Criteria           Text……………………………………………………
                   ……………………………………………………………………………………………………
                   ……………………………
Condition          Text…………………………………………………
                   …………………………………..
                   • Bulleted text
                   • Bulleted text
                   ………………………………………………………….

Causes             Text…………………………………………………….

Effects            Text…………………………………………………………
                   …………………………….

Recommen-dations   Text…………………………………………….
                   …………………………………………………………

Action Plan        Text………………………………………………………
                   ………………………………………………………….
                     Mapping 5 Cs with Objectives


                                        Condition
                             Inform     Criteria




                                       Cause
                                       Corrective Action
                           Action

          Persuade                            Record


Consequence
          The Report Writing Process
    Workpapers

1



    Detailed Comments Worksheets

2


    Prioritized and consolidated Comments Worksheets

3



    Main Report                    Executive Summary
4
                              5
Effective use of Comment Worksheets
• Right time
   – In the field
   – During the review
   – As soon as you identify to issue to communicate to the client or
     complete a section of work


• Right way
   – Prompt review by your manager
   – Periodic discussion and presentations to clients


       Quality of Comment worksheets will minimize future rewriting
                                     Tips
State Criteria in positive and measureable terms

•Finance policy requires transactions over Rs 50,000 to be approved by
  the Division Manager

•Accounts should be reconciled by an individual who does not have responsibility for
transaction entry




  Clarity on criteria: Sharpen thinking, focus your testing,
          significance of findings and relationships
                                     Tips
Statement of Condition should be factual, specific, objective and written in 1
sentence

•Transactions over Rs. 50000 were not properly approved by the Divisional
Manager

•Accounts reconciliation was not separated from data entry


Examples of weak, vague condition statements:

•Control weaknesses were noted
•Procedures for reconciling accounts need to be improved
•Exceptions were noted in the review of large transactions

                   Comment sheet – Conclusion and evidence
                                     Tips
Choose facts or examples that convey the significance or extent of the
Condition:

•Sixty percent of the 20 transactions reviewed were not authorized by the Division
manager

•The accounts clerk who enters accounting transactions also does the weekly
reconciliation
                                      Tips
Consider the following questions to describe the Consequence (Risk/impact):

•So what?

•What has gone wrong or could go wrong as a result of the condition?

•What is the probable cost to the company?

•What is the risk or extent of the exposure?

•How does this affect the client’s business or operation?
                                     Tips
Analyze the likely Cause:

Common causes include:

    • System design or use

    • Process

    • Policy

    • Human error

    • Resources

    • Circumstantial factors – volume, staffing or emergency

                    Be specific and descriptive, not judgmental
                                     Tips
Make a Preliminary Corrective Action/Recommendation


• Aim at preventing the condition from recurring




                   Focus on a solution and not a band-aid fix
   Organize the report for Impact and Readability
Sections of the report

    •Objective of the audit assignment
    •Scope of work
    •Background information
    •Overall conclusion / Rating
    •Key point or results
    •Recommendations or Action Plans
    •Appendices/Annexure

Identifying Data for a Report

    •   Title of the Report
    •   Date of the Report
    •   Time period covered
    •   Details of audit team – field work and reviewer
    •   Identifying Number of the Report
    •   Distribution list
                           Sentence Tips
Put information of greatest significance up front in your report

    • Follow the lead of newspaper journalists

    • Headline gets attention

    • First sentence tells the key point of the story

Think multi-layered CAKE

    • Keep your highest-level readers’ favorite flavors at the top




                Think Business Newspaper and Blackforest Cake
Additional Sentence writing
resources

  http://www.youtube.com/watch?v=w183qB0KDFg&feature=related
 Deadly Sins
      of
Report Writing
                       1. Filler Phrases
Filler phrases take up space but add no meaning. You can delete
them without changing the meaning of the sentence.

               Examples                       Edited for Conciseness
   During our review
   We noted that
   It was noted
   Review of . . . disclosed
   It was determined that
   This is to inform you that
   There is potential that . . . could. .
   Develop and implement                    This column is blank because
 procedures to ensure that. . .             these phrases need no
   Our examination of . . . identified      replacement. Just delete
 that . . .                                 them.
   It is understood that
              2. Redundant Modifiers
Redundant modifiers use unnecessary adjectives or adverbs or turn a simple
adjective into a long phrase.


             Examples                     Edited for Conciseness
   Current tools that are available   System tools
 in the system
   Support functions that would be    Support functions
 of assistance to users
   In the month of June               In June
   On a daily basis                   Daily
   A wide variety of processing       Many steps
 steps                                Charges resulting from these
   Charges that resulted from       transactions
 these types of transactions          Independent, experienced
   Competent and responsible        personnel
 personnel from outside the
 organization
                 3. Drawn-Out Verbs
Drawn-out verbs turn simple action verbs into a noun phrase. Drawn-
out verbs often contain a noun with the “tion” ending, and they always
require a preposition.

            Examples                   Edited for Conciseness
 Ensure the implementation              Implement
 of
 Perform a verification of              Verify
 Make an adjustment to                  Adjust
 Conduct an analysis of                 Analyze
 Do a review of                         Review
 Perform testing of                     Test
 Perform a reconciliation of            Reconcile
            4. Overstated Language
Overstated language uses longer, more complicated words where
simpler, shorter words would suffice.


          Examples                         Edited for
                                          Conciseness
  Utilization                        Use
  Additionally                       Also
  Due to the fact that               Because
  In order to                        To
  Formal written procedures          Written procedures
  By means of                        By; through
  At this point in time              Now
  Sufficient to provide              Sufficient
reasonable assurance that
                5. Empty Words
Empty words offer generalizations and do not stand alone.

       Examples                     Edited for Conciseness
 Enhance controls
 Improve efficiencies
 Used to its full
advantage
 Appropriate
 Improvement is needed
 It appears that
 Areas requiring attention
 Ensure appropriateness
 Some issues                  This column is blank because there are
 Generally adequate        no direct substitutes for empty words. You
 Inefficient               should use concrete and precise words
 Several                   instead of empty words.
                 6. Passive Voice
Passive voice uses a form of “to be” followed by the past
participle and, usually, a prepositional phrase.

          Examples                      Edited for
                                       Conciseness
 Procedures are being performed      Users perform manual
  manually by users                  procedures
 The handling of collections is      The department handles
  performed by the department        collections
 Reconciliations of suspense         The supervisor reconciles
 accounts are performed by the       suspense accounts
 supervisor
 A management review will be         The manager will review
 completed of the account            the account
 Performance evaluations have been   Staff have received
  received by staff                  performance evaluations
                   7. Repetition
Repetition results from using the same word within the sentence or
repeating it from one sentence to the next.

             Examples                      Edited for
                                          Conciseness
   Our test of expense reports          Expense reports
 revealed that expense reports       contained exceptions.
 contained exceptions.                  Supporting
   Supporting documentation was      documentation was not
 not attached to support expenses    attached.
   Procedures are in place to           Procedures are in
 prioritize program changes and      place to prioritize and
 properly monitor program            monitor program
 changes.                            changes.
                                 Example
Increased utilization of SAP would enhance controls and improve efficiencies.
During the review of the procurement process, we noted that key departmental
personnel are not trained regularly on SAP system features. SAP provides
certain functionalities that facilitate processes; however, we noted that certain
users are not completely familiar with them. As a result, the system is not being
used to its full advantage and some processes are still being performed manually
by the users.
Below are certain tools within SAP that are not being used that we identified
during our review:
 Request for Quotation (RFQ) to obtain prices from vendors.
 Price analysis for comparison among vendors.
 Third party performance metrics such as quality and service levels.
Utilization of the above tools would enhance controls and improve efficiencies.
Management should conduct an analysis of the current tools that are available in
the system. Additionally, it should be determined which of the current tools would
provide the support functions that would be of assistance to users.
       Deadly Sins of Wordiness Highlighted
Increased utilization4 of SAP would enhance controls and improve efficiencies5.
During the review of the procurement process, we noted that1 key departmental
personnel are not trained regularly5 on SAP system features. SAP provides certain
functionalities5 that facilitate processes; however, we noted that1 certain users are
not completely2 familiar with them. As a result, the system is not being3 used to its
full advantage and some processes are still being performed manually by the
users3&6.
Below are certain5 tools within SAP that are not being used that we identified
during our review2&1:
 Request for Quotation (RFQ) to obtain7 prices from vendors.
 Price analysis for comparison among vendors.
 Third party performance metrics such as4 quality and service levels.
Utilization4 of the above tools would enhance controls and improve efficiencies.
Management should conduct an analysis3 of the current2 tools that are available
in the system2. Additionally4, it should be determined1 which of the current5
tools would provide the support functions that would be of assistance2 to users.
The Sins of Wordiness :
1. Filler Phrases, 2. Redundant Modifiers, 3. Drawn-Out Verbs,
4. Overstated Language, 5. Empty Words, 6. Passive Voice, 7. Repetition
       Example of a Concise Narrative

Key personnel are not trained on SAP features
that facilitate certain processes. As a result, the
system is not used to its full advantage. The
following SAP Tools are available to replace
manual processes :

  Request for Quotation from vendors
  Price analysis to compare vendors’ quotes
  Third-party quality and service metrics

Management should determine which tools can
support system users.
            Wordy vs Concise

• Original version : 165 words (approx)

• Revised version : 60 words (approx)



That is a 60% reduction in the length of the paragraph
                                 Tips

Mark Twain once apologized to his friend for writing him a long letter


“I would have written you a shorter
  letter, but I didn’t have the time”

                               Say it concisely
                      Summary

                                Condition
                       Inform   Criteria




                                Cause
                                Corrective Action
                      Action

           Persuade                    Record


Consequence (Risk)

     Don’t write to get read, write to get Results   38
Thank you

				
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