INTERNAL AUDITING

SETTING AN AUDIT STRATEGY

1. BACKGROUND
The internal audit department developed a
strategy document to setout the framework
for internal audit activities.
The audit strategy is revised and kept up-
to-date by internal audit department.
For internal audit remain relevant, it must
adopt to changing expectations and
maintain alignment with organizational
objectives.
2. The Purpose of the Internal Audit
Strategy
- is to put in place strategic approach
which enables to provide stakeholders
with an independent and objective
assessment of the organizations business
processes and systems, risk management,
control and governance processes.
The audit strategy aims to define the
priorities of the Internal Audit Section
(IAS).
3. Strategic Objectives of Internal
Audit Section
The strategic objectives of IAS are to
increase the value added, through internal
audits, to the organizations structures,
systems and processes and improve
operational effectiveness and efficiency by
1. Aligning the audit work plans with the
organizations strategic objectives and
plans.


2. Providing professional advice on risk
management, internal controls and
governance issues.
3. Improving the quality of audit reports.
4. Communicating effectively with the
senior management.
5. Promoting continuous professional
education and career development of
internal audit staff.
4. Audit Planning Process
A systemic and structured process can be used
to develop the internal audit strategic plan,
helping to enable the internal audit activity to
achieve its vision and mission.
Internal audit strategic plan includes:
1. Understand the relevant industry and the
organizations objectives.
2. Consider the IPPF standards and guidance
(International Professional Practices Framework)
4. Audit Planning Process
3. Understand stakeholder expectations
4. Update the internal audit vision and mission
5. Define the critical success factors
6. Perform a SWOT analysis
7. Identify the key initiatives
8. Financial ratio analysis
9. Cost/ benefit analysis value, value chain
analysis and benchmarking as strategic
management tools
The Internal Assessment
Identify the basic functions or activities
that make-up management, marketing,
finance/accounting, production/
operations, research and development
and management information systems for
further improvement.
The functions of finance/ accounting
comprise three decisions
1. The investment decision
2. The financing decision
3. The dividend decision
Investment Decisions
The allocation and reallocation of capital
and resources to projects, assets and
divisions of an organization.
Financing Decision
Determines the best capital structure for
the firm and includes examining various
methods by which the firm can raise
capital.
Dividends Decision
Concern issues such as the percentage of
earnings paid to stockholders, the stability
of dividends paid over time, and the
repurchase or issuance of stock.
Determine the amount of funds that are
retained in a firm compared to the amount
paid out to stockholders.
Key Financial Ratios
How calculated and what it measures
Liquidity ratios current and quick ratio
Leverage ratios Debt to total assets
ratio, Debt to equity ratio, Long-term debt
to equity ratio
Activity ratios Inventory turnover, Fixed
assets turnover, Total assets turnover,
Accounts receivable turnover,
Key Financial Ratios
How calculated and what it measures
Profitability ratios Gross profit margin,
Operating profit margin, Net profit margin,
Return on total assets, Return on
stockholders equity, EPS, Price earnings
ratio
Growth ratios Sales, Net income,
Earnings per share, Dividends per share