Module 4 - Introduction to Performance Audit_4A

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Materiality is relevant for all audits, not just performance audits, although the focus for financial auditing is primarily numerical. It is also an issue to consider throughout the audit process, and may influence scoping, planning, evaluation, and reporting. For the internal auditor, the ethical principle of objectivity requires one to “disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review.” 24 Materiality is also relevant to the exercise of due professional care requiring auditors to consider “relative complexity, materiality, or significance of matters to which assurance procedures are applied.” 25 For external auditors, there is greater direction regarding materiality. According to ISSAIs 300 and 3000: 33) Auditors should consider materiality at all stages of the audit process. Thought should be given not only to financial but also to social and political aspects of the subject matter, with the aim of delivering as much added value as possible. 26 83) The auditor shall consider materiality at all stages of the audit process, including the financial, social and political aspects of the subject matter with the goal of delivering as much added value as possible. 27 Audit Risk As a goal-oriented activity, auditing is subject to risk. Circumstances relating to people, resources, processes, and events may impact an audit, including its accuracy, timeliness, relevance, and impact on the recipients of the report. Controls for audit risk include appropriate auditor training, internal audit policies, careful planning, supervision, and adherence to standards and methodologies. More specifically, the term “audit risk” is used to refer to the potential an auditor (usually in the context of external audit) may issue an incorrect opinion. It is considered in relation to financial audits but is useful to take into account for all engagements, including performance engagements. There are inherent risks in making judgments. An auditor must rely on their ability to summarize and evaluate, and necessarily makes assumptions about information gathered and used. Control risks may arise when organizational processes are used to identify material misstatements in reports used by the auditor. ISSAIs 300 and 3000 guide auditors in respect of audit risks as follows: 28) Auditors should actively manage audit risk, which is the risk of obtaining incorrect or incomplete conclusions, providing unbalanced information or failing to add value for users. 28 24 Rules of Conduct: Objectivity 2.3, The International Professional Practices Framework, The IIA, 2016. 25 1220 Due Professional Care, The International Professional Practices Framework, The IIA, 2016. 26 ISSAI 300 Performance Audit Principles, INTOSAI, 2019. 27 ISSAI 3000 Performance Audit Standard, INTOSAI, 2019. 28 ISSAI 300 Performance Audit Principles, INTOSAI, 2019. 18
52) The auditor shall actively manage audit risk to avoid the development of incorrect or incomplete audit findings, conclusions, and recommendations, providing unbalanced information or failing to add value. 29 4A.2: Reflection How is the decision made to include a performance audit in the internal audit plan? Do audit clients understand the difference between performance audits and other kinds of engagements? The IIA provides no additional standards for performance audits and limited guidance. Are the steps and processes for conducting performance audits defined for you in audit policies, manuals, and handbooks? 4A.3 Performance Auditing Supervision Supervision is a prerequisite for all audit engagements for the purposes of quality control. Supervision also serves to improve the efficiency of the audit process. For internal auditing, supervision is a key part of ongoing monitoring within internal assessments which are key to the quality assurance and improvement program. Ongoing monitoring is an integral part of the day-to-day supervision, review, and measurement of the internal audit activity. Ongoing monitoring is incorporated into the routine policies and practices used to manage the internal audit activity and uses processes, tools, and information considered necessary to evaluate conformance with the Code of Ethics and the Standards. 30 The requirements for audit supervision are included in both IIA and ISSAI standards. 2340 – Engagement Supervision Engagements must be properly supervised to ensure objectives are achieved, quality is assured, and staff is developed. Interpretation: The extent of supervision required will depend on the proficiency and experience of internal auditors and the complexity of the engagement. The chief audit executive has overall responsibility for supervising the engagement, whether performed by or for the internal audit activity, but may designate appropriately experienced members of the internal audit activity to perform the review. Appropriate evidence of supervision is documented and retained. 31 29 ISSAI 3000 Performance Audit Standard, INTOSAI, 2019. 30 Standard 1311 – Internal Assessments, The International Professional Practices Framework, The IIA, 2016. 31 The International Professional Practices Framework, The IIA, 2016. 19
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Module 4 - Introduction to Performance Audit_4A

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