Reporting in Internal Audit

The Institute of Chartered Accountants of India issued Standard on Internal Audit (SIA) 4-Reporting. The purpose of formulating it was to establish standards on the content and forms contained by issued Audit Report after the conclusion of the Internal Audit Service. It can be said as a document which is prepared by the internal auditors as a result of the performed audit and contains a detailed view on the control measures, system, procedures and the financial statement of the company. SIA 4 clearly states that-

“The internal auditor should review and assess the analysis drawn from the internal audit evidence obtained as the basis for his conclusion on the efficiency and effectiveness of systems, processes and controls including items of financial statements.

This review and assessment involves considering whether the systems, procedures and controls are in existence and are operating effectively.

The internal auditor’s report should contain a clear written expression of significant observations, suggestions/ recommendations based on the policies, processes, risks, controls and transaction processing taken as a whole and managements’ responses.”

Basic Elements of the Internal Audit Report:

The following basic elements must be included in the Auditor’s, Internal Audit Report, ordinarily in the prescribed format-

·         Title and theme of the audit report

·         Name and details of the Addressee

·         List of Report Distribution

·         Coverage Period of the Internal Audit Report

·         Introductory or Opening paragraph that should contain the following:

(a)    Identifying the items, related functions and processes of the audited financial statement.

(b)   Company management’s statement of responsibility.

(c)    Statement of responsibility of the internal auditor.

·         Paragraph stating the objectives: The scope and objectives of the engagement of the internal audit is to be stated as a statement in the internal audit report.

·         Scope paragraph for describing the internal audit’s nature:

(a)    As applicable, reference for the audit procedures in India that are generally and widely accepted.

(b)   Used sample techniques and population description.

(c)    Detailed description of the methodology and background engagement of the internal audit along with the methods and procedures performed by the auditor.

·         Executive Summary that highlights the following:

(a)    The key material issues

(b)   Observations

(c)    Control weaknesses

(d)   Exceptions

·         Internal auditor’s findings, observations and recommendations are to be described in the internal audit report.

·         Local management’s comments.

·         Report on Action Taken: Any Action taken or not taken regarding the made observations in the previous internal audit report are to be descripted in the new one.

·         Date of preparing the internal audit report.

·         Place of signature.

·         Signature of Internal auditor with Membership Number.

The auditor must maintain the uniformity of the content and forms in the internal audit report. This is very desirable as it helps in promoting the basic understanding among the readers of the report. It also, helps in identifying the occurrence of unusual circumstances.

Standards on Internal Audit (SIA)-4 clearly states that the internal auditor must exercise professionalism and uttermost care while preparing the internal audit report. It must be inter-alia with the following points:

·         It should be very clear.

·         It should be factual and should present all the significant matters along with disclosure of related material facts.

·         Internal Audit Report should really specific.

·         It should be concise and not very lengthy.

·         Internal Audit Report should be unambiguous.

·         It should be prepared timely.

It should comply with applicable and generally accepted audit procedures in India.