Internal Audit Internal Audit Internal Audit Internal Audit

Report WritingReport WritingReport WritingReport 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

Inform

Action

RecordPersuade

IA Report Writing Objective

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 – Reportingf Standard Establish standards on the form and content of the internal

auditor‘s report.

Basic elements of

the audit report

Layout of the internal audit report includes:

• 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

excise due

professional care

Ensure that internal audit report is :

• Clear and Factual,

• Specific and Concise,

• Unambiguous and Timely,

• Complies with generally accepted audit procedures in India.

Communication to

management

Different stages of communication are:

• Discussion of draft,

• Exit meeting,

• Formal draft

• Final report

Limitation on scope

and restriction on

usage & circulation

• Describe the limitation

• For intended purpose and limited to distribution list

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?

10

5 Cs – Report Writing ToolkitComponent 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

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5 Cs – Report Writing ToolkitComponent 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

Action

Description of action Necessary to Correct the Condition:

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

Heading

Criteria Text……………………………………………………

…………………………………………………………………………………………………………………………………

Condition Text…………………………………………………

…………………………………..

• Bulleted text

• Bulleted text

………………………………………………………….

Causes Text…………………………………………………….

Effects Text…………………………………………………………

…………………………….

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

…………………………………………………………

Action Plan Text………………………………………………………

………………………………………………………….

Sample Comment Sheet

Inform

Action

RecordPersuade

Cause

Corrective Action

Consequence

Condition

Criteria

Mapping 5 Cs with Objectives

The Report Writing Process Workpapers

Detailed Comments Worksheets

Prioritized and consolidated Comments Worksheets

Main Report

1

3

2

4

5

Executive Summary

• 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

Effective use of Comment Worksheets

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?

TipsAnalyze 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

Think Business Newspaper and Blackforest Cake

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

Additional Sentence writing

resources

http://www.youtube.com/watch?v=w183qB0KDFg&feature=related

Deadly Sins

of

Report Writing

1. Filler PhrasesFiller 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 procedures to ensure that. . .

�Our examination of . . . identified that . . .

�It is understood that

This column is blank because

these phrases need no replacement. Just delete them.

2. Redundant ModifiersRedundant modifiers use unnecessary adjectives or adverbs or turn a simple

adjective into a long phrase.

Examples Edited for Conciseness

�Current tools that are available in the system

�Support functions that would be of assistance to users

�In the month of June

�On a daily basis

�A wide variety of processing steps

�Charges that resulted from these types of transactions

�Competent and responsible personnel from outside the organization

�System tools

�Support functions

�In June

�Daily

�Many steps

�Charges resulting from these transactions

�Independent, experienced personnel

3. Drawn-Out VerbsDrawn-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 of

�Perform a verification of

�Make an adjustment to

�Conduct an analysis of

�Do a review of

�Perform testing of

�Perform a reconciliation of

�Implement

�Verify

�Adjust

�Analyze

�Review

�Test

�Reconcile

4. Overstated Language

Overstated language uses longer, more complicated words where

simpler, shorter words would suffice.

Examples Edited for Conciseness

�Utilization

�Additionally

�Due to the fact that

�In order to

�Formal written procedures

�By means of

�At this point in time

�Sufficient to provide reasonable assurance that

�Use

�Also

�Because

�To

�Written procedures

�By; through

�Now

�Sufficient

5. Empty WordsEmpty 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

�Generally adequate

�Inefficient

�Several

This column is blank because there are no direct substitutes for empty words. You should use concrete and precise words instead of empty words.

6. Passive VoicePassive 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 manually by users

�The handling of collections is performed by the department

�Reconciliations of suspense accounts are performed by the supervisor

�A management review will be completed of the account

�Performance evaluations have been received by staff

� Users perform manual procedures

� The department handles collections

� The supervisor reconciles suspense accounts

� The manager will review the account

� Staff have received performance evaluations

7. RepetitionRepetition 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 revealed that expense reports contained exceptions.

�Supporting documentation was not attached to support expenses

�Procedures are in place to prioritize program changes and properly monitor program changes.

� Expense reports contained exceptions.

� Supporting documentation was not attached.

� Procedures are in place to prioritize and monitor program 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

Say it concisely

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”

38

Inform

Action

RecordPersuade

Don’t write to get read, write to get Results

Cause

Corrective Action

Consequence (Risk)

Condition

Criteria

Summary

Thank you