An Effective Internal Audit Function
Internal audit activity is much more likely to detect fraud than external audit activity according to recent editions of the Report to the Nation on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners. Internal audit activity can also identify errors, as well as serve as a launching pad to improve governance, risk and compliance practices. It is also a great avenue in discovering opportunities for making people, process, and system more efficient and effective.
While many larger organizations have an internal audit function staffed with employees, others may not. Candela Solutions can serve as a company's internal auditor by providing independent and objective internal assurance services. Even for companies with an in-house internal audit function, we can also help with a wide range of training and services commonly referred to as "co-sourcing" of the internal audit function. This is especially popular for technology matters in the event the company does not have a Certified Information Systems Auditor (CISA) or other on-site technology resources.
The reality is that many companies have needs beyond their internal audit staffing capabilities. Candela Solutions provides resources, either temporary or long-term, to bridge capability gaps. We can also report directly to audit committees thus enhancing independence of test results and making the efforts more acceptable to external auditors in support of SOX-404 efforts. The fact that we are a licensed accounting firm, rather than simply a consulting firm, adds credibility to our services by raising the comfort level with audit committees and external auditors.
Candela Solutions' Internal Assurance Practice is fluent in internal auditing standards, tools, and approaches to best meet objectives. We can work to fulfill your internal audit needs through:
Establishing an Internal Audit function
Establishing an internal audit function is an important step as a company grows and takes on more risks. The function serves as a conduit of assurance and a platform for performance improvement. The board, either directly or through a committee, should authorize resources or help set the agenda for internal audit focus. Built into the function should be a component to identify and investigate fraud and other financial-reporting irregularities. Operational and compliance objectives can also better be monitored and met with an effective internal audit function.
Candela Solutions assists with many aspects of establishing an internal audit function, including:
Assessing the Severity of Deficiencies
Accounting and auditing matters involve a clear understanding of the definitions and principles. Equally important is applying judgment to the definitions and principles. Concluding on materiality matters lies at the heart of these challenges for both preparers and auditors. In addition to materiality considerations of financial disclosures; preparers and auditors need to consider the level of deficiencies they identify pertaining to the preparer's internal controls over financial reporting (ICFR). Concluding upon whether a deficiency is a material weakness, significant deficiency or simply a deficiency is important in adhering to disclosure requirements, and both internal and external auditing standards.
An ICFR deficiency is identified when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of ICFR (generally interpreted as the audit committee or full board of directors if an audit committee does not exist). Finally, a material weakness is a deficiency, or combination of deficiencies, in ICFR such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. Concluding on the severity of a deficiency involves a lot of judgment. A process should be followed to consider all of the relevant factors. A decision tree approach is helpful and should be considered.