Auditing

Topics: Auditing, Audit, Internal audit Pages: 37 (10682 words) Published: June 22, 2013
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CHAPTER 4 ASSURANCE AND CONSULTING SERVICES
Urton Anderson

The Institute of Internal Auditors Research Foundation

Disclosure Copyright © 2003 by The Institute of Internal Auditors, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201. All rights reserved. Printed in the United States of America. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means — electronic, mechanical, photocopying, recording, or otherwise — without prior written permission of the publisher. The IIA publishes this document for informational and educational purposes. This document is intended to provide information, but is not a substitute for legal or accounting advice. The IIA does not provide such advice and makes no warranty as to any legal or accounting results through its publication of this document. When legal or accounting issues arise, professional assistance should be sought and retained. The Professional Practices Framework for Internal Auditing (PPF) was designed by The IIA Board of Directors’ Guidance Task Force to appropriately organize the full range of existing and developing practice guidance for the profession. Based on the definition of internal auditing, the PPF comprises Ethics and Standards, Practice Advisories, and Development and Practice Aids, and paves the way to world-class internal auditing. This guidance fits into the Framework under the heading Development and Practice Aids. ISBN 0-89413-498-1 02404 01/03 First Printing

98 Research Opportunities in Internal Auditing

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I. Introduction
Internal auditing provides a variety of services to the organization. These services may range from conducting financial, performance, compliance, system security, and due diligence audits, to participating on committees to select new accounting software, to revising the organization’s code of conduct, to teaching training courses in internal control to new managers. If one were to limit one’s thinking about internal auditing to just the traditional auditing of internal controls, one would be missing a significant part of the work being performed by the internal audit function in many organizations. In this section we look at internal audit from a much broader perspective than that used in traditional audit research where auditing is treated primarily as a matter of attesting to management’s assertions. We begin with the question of how the internal audit function adds value to the organization. Next we describe the range of value-added internal audit services and examine the nature of assurance and consulting activities. Four specific issues in providing assurance services are then discussed: • • • • Levels of assurance The relation of evidence to type and level of assurance Providing assurance outside the organization The nature of assurance in fraud investigation

Consulting services also has a number of issues with which practice struggles. We will discuss four of particular concern: • • • • Blended engagements Balancing assurance and consulting Limits on the extent of consulting an internal audit function should undertake The risk and reward of providing consulting services

Throughout our examination of each of these topics, potential research questions will be identified. These questions are summarized in an appendix at the end of this chapter.

II. Adding Value
How does one determine if an activity adds value? To begin to answer that question one must first identify the activity’s customer. As Exhibit 4-1 illustrates, in the case of internal auditing, the identification of a single or even a primary customer is not clear. Is it the CEO?

The Institute of Internal Auditors Research Foundation

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Throughout the 1970s and 1980s, writers such as...

References: American Accounting Association, A Statement of Basic Auditing Concepts (Sarasota, FL: American Accounting Association, 1973). Anderson, U., “Assessing the Merits of Alleged Wrongdoing,” Internal Auditing, Spring 1995, pp. 48-54. Crawford, D., C. Chaffin, and S. Scarborough, Effective Compliance Systems: A Practical Guide for Educational Institutions (Altamonte Springs, FL: The Institute of Internal Auditors, 2001). Dugan, I., D. Berman, and A. Barrionuevo, “On Camera, People at Andersen, Enron Tell How Close They Were,” The Wall Street Journal, April 15, 2002, p. A-1. Hawkins, K., and B. Huckaby, “Using CSA to Implement COSO,” Internal Auditor, June 1998, pp. 50-55. IFAC Public Sector Committee, Governance in the Public Sector: A Governing Body Perspective (New York: International Federation of Accountants (IFAC), 2001). The Institute of Internal Auditors (IIA), A Vision for the Future: Professional Practices Framework for Internal Auditing (Altamonte Springs, FL: The Institute of Internal Auditors, 1999). The Institute of Internal Auditors (IIA), Recommendations for Improving Corporate Governance: A position paper presented by The Institute of Internal Auditors to the U.S. Congress April 8, 2002 (Altamonte Springs, FL: The Institute of Internal Auditors, 2002). The Institute of Internal Auditors, Standards for the Professional Practice of Internal Auditing (Altamonte Springs, FL: The Institute of Internal Auditors, 1978-2001). The Institute of Internal Auditors, Standards for the Professional Practice of Internal Auditing (Altamonte Springs, FL: The Institute of Internal Auditors http://www.theiia.org/ecm/ guidance.cfm?doc_id=124., 2002). Internal Control Working Party of the Institute of Chartered Accountants in England & Wales, Internal Control: Guidance for Directors on the Combined Code (London: The Institute of Chartered Accountants in England & Wales, 1999.)
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Joint Committee on Corporate Governance, Beyond Compliance: Building a Governance Culture (Toronto: Joint Committee on Corporate Governance, 2001). Roth, James, Adding Value: Seven Roads to Success (Altamonte Springs, FL: The Institute of Internal Auditors, 2002). Sawyer, Lawrence, The Practice of Modern Internal Auditing: Appraising Operations for Management (Altamonte Springs, FL: The Institute of Internal Auditors, 1973). United States General Accounting Office (GAO), 2002a. Government Auditing Standards: Amendment No. 3, Independence, GAO-02-388G. http://www.gao.gov/. United States General Accounting Office (GAO), 2002b. Government Auditing Standards: Answers to Independence Standards Questions, GAO-02-870G. http://www.gao.gov/. United States General Accounting Office (GAO), 2002c. Government Auditing Standards Exposure Draft, GAO-02-340G. http://www.gao.gov/.
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