Internal Auditing
Topic 1: Introduction to
Internal Auditing
BBA III – Semester I, 2024/2025 Frank Kabuye
(CPA, MSAC,
PGDBE, BBA)
16th August 2024
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
Who is Frank
Kabuye in the
internal audit
space?
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
Who is Frank
Kabuye in the
internal audit
space?
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
This picture shows citations as
at 15/08/2024, and a few
publications by the Author.
Who is Frank
Kabuye in the
internal audit
space?
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
▪ Internal auditing is an independent, objective assurance and consulting
activity designed to add value and improve an organisation’s operations.
▪ It helps an organisation accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and improve the
Meaning & effectiveness of risk management, control, and governance processes.
phases of
Internal
Auditing
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
The Institute of Internal Auditors
Career in
Internal Audit
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
The three
lines model
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
➢Principles as issued by the Institute of Internal Auditors (IIA) define
tangible internal audit effectiveness.
The core ➢When all Principles are present and operating cohesively, internal audit
function achieves maximum efficiency.
Principles of
Internal Audit
➢Though the way every internal auditor approaches these Core
Principles may vary from organization to organization, there’s no
denying that a failure to achieve any of the Principles would signal an
internal audit activity that’s not performing at its absolute best.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
➢Demonstrates integrity. Integrity is everything in the world of internal auditing.
➢Demonstrates competence and due professional care.
➢Is objective and free from undue influence (independent).
➢Aligns with the strategies, objectives, and risks of the organization.
The core ➢Is appropriately positioned and adequately resourced.
Principles of ➢Demonstrates quality and continuous improvement.
Internal Audit ➢Communicates effectively.
➢Provides risk-based assurance.
➢Is insightful, proactive, and future-focused.
➢Promotes organizational improvement.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
The purpose statement is intended to assist internal auditors and
internal audit stakeholders in understanding and articulating the value of
internal auditing.
Purpose Statement
Purpose of Internal auditing strengthens the organization’s ability to create, protect,
and sustain value by providing the board and management with
independent, risk-based, and objective assurance, advice, insight, and
foresight.
Internal auditing enhances the organization’s:
1. Successful achievement of its objectives.
2. Governance, risk management, and control processes.
3. Decision-making and oversight.
4. Reputation and credibility with its stakeholders.
5. Ability to serve the public interest.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
Internal auditing is most effective when:
❖It is performed by competent professionals in conformance with the
Global Internal Audit Standards, which are set in the public interest.
Effectiveness
of internal ❖The internal audit function is independently positioned with direct
audit Function accountability to the board.
❖Internal auditors are free from undue influence and committed to
making objective assessments.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
• The cost of setting up an internal audit department compared to its
benefits.
• The size and complexity of the entity – the larger and more complex
Factors in the entity is, the greater the need. Usually no need in small owner managed
entities as owners exercise more direct control over operations.
assessing the • The role that would be played by the internal audit department such as
need for internal control reviews.
internal audit • Whether there are existing managers or employees who could perform
these tasks and therefore reducing the need to establish a separate
internal audit department.
• The risk of fraud – the higher the risk of fraud, the greater the need so
as to as both a deterrent and also to possibly undertake fraud
investigations.
• The pressure from external stakeholders to have internal audit.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
➢The scope of internal auditing encompasses, but is
not limited to, the examination and evaluation of the
adequacy and effectiveness of the organization's
Responsibility governance, risk management, and internal controls
of internal as well as the quality of performance in carrying out
assigned responsibilities to achieve the organization’s
auditors stated goals and objectives.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
➢Evaluating risk exposure relating to achievement of the organization’s
strategic objectives.
➢Evaluating the reliability and integrity of information and the means
used to identify, measure, classify, and report such information.
Responsibility ➢Evaluating the systems established to ensure compliance with those
policies, plans, procedures, laws, and regulations which could have a
of internal significant impact on the organization.
auditors
➢Evaluating the means of safeguarding assets and, as appropriate,
verifying the existence of such assets.
➢Evaluating the effectiveness and efficiency with which resources are
employed.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
❑Evaluating operations or programs to ascertain whether results are
consistent with established objectives and goals and whether the
operations or programs are being carried out as planned.
Responsibility ❑Monitoring and evaluating governance processes.
of internal
auditors ❑Monitoring and evaluating the effectiveness of the organization's risk
management processes.
❑Evaluating the quality of performance of external auditors and the
degree of coordination with internal audit.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
❑Performing consulting and advisory services related to governance,
risk management and control as appropriate for the organization.
❑Reporting periodically on the internal audit activity’s purpose, authority,
responsibility, and performance relative to its plan.
Responsibility
of internal ❑Reporting significant risk exposures and control issues, including fraud
auditors risks, governance issues, and other matters needed or requested by the
Board.
❑Evaluating specific operations at the request of the Board or
management, as appropriate.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
Global internal audit standards
Accountants act 2013
Regulation of Companies Act 2012
internal Public Finance and Management Act 2015
auditors Local Government Act
Internal audit manuals and polcies
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
• Value for money audit on behalf of management to assess economy, efficiency and
effectiveness of an entity’s operations. Economy means using resources (inputs) at
the lowest cost. Efficiency is a measure of the relationship between goods and
services produced (outputs) and the resources used to produce them (inputs).
Effectiveness is how well an activity is achieving its policy objectives or other
intended effects.
Internal audit • Financial audits by carrying out substantive procedures of transactions and
balances to ensure fair presentation of financial statements and management
activities reports.
• Operational audits that are audits of the operational processes of an entity. They
are also known as management, or efficiency audits. Their main objective is
monitoring of management’s performance, ensuring entity policies are adequate and
work effectively e.g. adherence to procurement procedures.
• Testing internal controls and making recommendations on how to improve them
e.g. performs tests of controls on sales, purchases, cash, payroll, inventory and
capital transactions.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
• Information technology audits e.g. system development, access control, database
management.
• Compliance audits – review compliance with laws and regulations.
• Entity risk management: Monitors the company's overall risk management policy to
ensure it operates effectively. Monitors the strategies implemented to ensure that
Internal audit they continue to operate effectively.
activities • Fraud investigations – review and test controls to prevent or detect fraud,
investigate any suspected fraud and make reports recommending improvements.
• Customer service reviews – internal auditors may be asked to assess the level of
customer service. They may could do this by phoning in or visiting stores/outlets and
pretending to be customers. Alternatively they could review and analyse the results
of customer surveys.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
Internal audit
activities
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
Limitations of ▪ Scope Limitations
the internal ▪ Objectivity Concerns
audit function ▪ Resource Limitations
▪ Reliance on Internal Information
▪ Potential for Over-Familiarity
▪ Focus on Past Performance
▪ Risk of Management Override
▪ Implementation of Recommendations
▪ Dynamic Risk Environment
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
External audit Internal audit
Objective To enable auditors to express an To improve an entity’s operations
opinion on the financial statements by reviewing the efficiency and
effectiveness of its activities.
Scope Relates to financial statements and Relates to an entity’s operations
financial records that underlie them. including value for money audit.
Relationship External auditors are independent of Internal auditors are often
to the entity the entity and its management. In a employees of the entity, although
company, they are appointed by the sometimes the internal audit
shareholders. function is outsourced.
Reporting External auditor reports to Internal audit reports to the board
shareholders in case of a company, to of directors and the Audit
Parliament in case of government or committee.
an equivalent body.
Fraud External auditors have no Helps management to fulfil its
responsibility to detect fraud within a responsibility for preventing and
client. detecting fraud.
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
Conclusion
16/08/2024 12:01 CPA Frank Kabuye - Department of Auditing & Taxation, MUBS.
