Supervision of an internal audit engagement should include

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Core Evidence Demonstrating Compliance
What is supervision in auditing?
What are included in audit engagement?
Who is responsible for the direction supervision and performance of the group audit engagement?
What does an internal audit supervisor do?

Performance Standards describe the nature of internal audit activities and provide criteria against which the performance of these services can be evaluated.

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WHILE REVIEWING A DRAFT AUDIT REPORT, A chief audit executive (CAE) decides to refer to the audit workpapers to better understand an audit matter when he realizes that the audit observation lacks validity. The audit team did not apply audit procedures correctly and, as a result, incorrect conclusions were reached. Further review of the workpapers reveals that additional audit work was not performed to assess key significant risks that were identified in the audit planning document. The client is expecting a closing meeting and draft report, and time is running out. Because of this failure, internal audit is unable to issue the audit report on time and will incur additional costs to perform the omitted audit procedures. While the example is hypothetical, it creates more than a headache for auditors. Receiving an audit report with an incorrect conclusion may cause the audit committee to question the effectiveness of the internal audit function, and internal audit may lose credibility and the respect of senior management and stakeholders. Moreover, the internal audit team may begin to question its own judgment and its ability to deliver quality audit services.

The IIA provides clear rules on engagement supervision for internal audit via the International Standards for the Professional Practice of Internal Auditing. Standard 2340: Engagement Supervision states that internal audit "engagements must be properly supervised to ensure objectives are achieved, quality is assured, and staff is developed." The standard makes the CAE ultimately responsible for engagement supervision, the extent of which depends on the proficiency and experience of the audit team. Practice Advisory 2340-1: Engagement Supervision recommends appropriate supervision during audit planning and execution and states that supervision helps ensure that the audit team possesses knowledge, skills, and competencies required to perform the audit. Effective supervision minimizes the risk of making incorrect or inconsistent professional judgments that may impact the engagement negatively. Because of the association between engagement supervision and quality of service, the audit community needs to have an effective system of checks and balances during fieldwork to help ensure that individual observations are valid and documented well in workpapers; address possibly deficient supervision in the increasingly used rotational, outsourcing, and cosourcing models; and strike the right balance between audit supervision and engagement efficiency.

OM TO IMPROVE

In The IIA's 2010 Global Internal Audit Survey, 2,940 CAEs reported that engagement supervision and reporting audit issues adequately in workpapers continue to be key areas needing improvement. The survey provides evidence that engagement supervision in...

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Gale Document Number: GALE|A271618413

Performing the engagement

The Standard states:

Internal auditors must identify, analyse, evaluate, and document sufficient information to achieve the engagement’s objectives.

The standards do not specify the format, presentation, maintenance or supervision of engagements; these remain within the gift of the Chief Internal Auditor (CIA) who is ultimately responsible for the audit work undertaken and conclusions reached. With this in mind the CIA should establish their own operating policies, procedures and templates which are documented within the Internal Audit Manual (IAM). Working papers to evidence the work undertaken can be maintained in either hard copy (physical) or soft copy (electronic) files.

The key objective is to establish working processes that ensure the golden thread exists between the Audit Planning Brief, performance, the conclusions reached and reported outcomes, so that a prudent, informed person would reach the same conclusion. The litmus test being that another person could open the audit file repeat the engagement, confirm outcomes, consider results and come to materially the same conclusion.

When undertaking engagements:

The auditor should follow the audit plan established during the Engagement Planning process and documented within the Audit Planning Brief; following a systematic approach to identifying, obtaining, analysing, evaluating and documenting sufficient audit evidence.
Document and review the design of controls; if the design of a control is immediately lacking then it is not necessary to test its effectiveness, as even if it is being applied consistently an improvement regarding the design weakness remains.
Where design is deemed appropriate its effectiveness should be tested; this analysis may be performed through either manual or analytical audit techniques. The auditor’s approach to analysis should clearly document the population, sampling process and method (if applicable), however, the auditor should avoid excessive narrative on test schedules unless required to explain specific exceptions.
Manual audit processes include walk-through, verification, completeness, reperformance and confirmation. The auditor should evidence their work through obtaining examples, photocopies, scans or screenshots to evidence their thought process and support the conclusions of their work.
Analytical audit processes include benchmarking, forecasts, ratio analysis, reasonableness and investigation of exceptions. The auditor should evidence their thought process, data collection, analysis methods, outcomes and summarise the conclusions of their work.
Supervision of audit teams should be undertaken to assure the CIA over quality and provide for the development of staff; the supervisory environment, processes and evidencing should be clearly documented within the IAM.
Supervisor review should assist in achieving the intended objective that another person could open the audit file repeat the engagement, confirm outcomes, consider results and come materially to the same conclusion. To this end; the supervisor ensures that the information, testing and results support the conclusions reached by the auditor in their working papers.
Documented review and clearance of review points demonstrates the effective supervision and oversight of the audit process; whilst it is not strictly necessary to keep a record of cleared review points, it can provide valuable intelligence when identifying and developing individual and group training.
Clear referencing system should be consistently adopted with working papers cross-referenced to the appropriate section of the audit work programme.

Core Evidence Demonstrating Compliance

Adoption of consistent working paper formats (included within IAM)
Clearly explain testing & sample methodology used
Clearly evidence supervision & clearance of review points

The Brief provides the auditor with the ‘plan’ against which the engagement is delivered; the objective thereafter is for the auditor to evidence the work they have undertaken to fulfil the plan and which another suitably qualified and experienced individual could repeat, confirming outcomes and materially arrive at the same conclusion.

The adoption of specific working paper formats is useful to ensuring that work is sufficiently and consistently documented; however, it is evidence of the thought process followed and outcomes which is most important. Supervision and internal quality review processes should seek to verify the accuracy of work undertaken, sufficiency of evidence to support the audit outcomes and evidence any review points which feed continuous improvement processes.

Formats and process should be documented within the IAM.

What is supervision in auditing?

02 The objective of the auditor is to supervise the audit engagement, including supervising the work of engagement team members so that the work is performed as directed and supports the conclusions reached.

What are included in audit engagement?

An audit engagement is an agreement between a client and an independent third-party auditor to perform an audit of some element of the client's business, such as accounting records, financial statements, internal controls, regulatory compliance, information systems, operational processes, etc.

Who is responsible for the direction supervision and performance of the group audit engagement?

11. The group engagement partner is responsible for the direction, supervision and performance of the group audit engagement in compliance with professional standards and regulatory and legal requirements, and whether the auditor's report that is issued is appropriate in the circumstances.

What does an internal audit supervisor do?

Perform audits for business operations, finances, compliance with policies and procedures. Oversee audit planning and reporting activities according to established policies. Supervise audit team to ensure quality and on-time delivery. Evaluate performance of audit staffs and provide appropriate feedback.