Understanding Risk assessment in audit planning

case study audit planning & risk assessment

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  • Published on 4 Dec 2023

Understanding Risk assessment in audit planning

Table of Contents

Definition of risk assessment in audit planning, the fundamentals of risk assessment, understanding the components of risk in audit, risk assessment procedures, risk assessment for ensuring audit effectiveness, challenges in risk assessment, strategies for overcoming challenges, become a certified information system auditor, final thought.

Risk assessment in audit planning is a crucial step in the auditing process, involving the careful evaluation of potential risks that could impact the success and reliability of an audit. Risk assessment essentially means identifying, analyzing, and understanding the various factors that may affect the outcome of an audit engagement. It's like a detective's work before solving a case – anticipating potential challenges and pitfalls.

In the world of audits, this process is essential to pinpoint areas where errors, fraud, and cybersecurity threats might occur. By clearly defining what risks might be present, including those related to cybersecurity planning , auditors can tailor their strategies accordingly, ensuring a more focused and effective approach to risk mitigation. Essentially, risk assessment acts as the compass, guiding auditors through the maze of financial data and potential cybersecurity challenges to ensure a thorough and reliable examination.

In this blog, we will delve into the fundamentals, components, and procedures of risk assessment, shedding light on its pivotal role in the effectiveness of the entire audit process. Let's embark on this journey to demystify the world of risk assessment in audit planning.

In the world of auditing, understanding Risk Assessment is like to having a reliable compass for navigating the intricate landscape of financial examination. To embark on this journey effectively, it's crucial to grasp the fundamental principles that underpin risk assessment in audit planning.

Risk assessment in audit planning-1

Before auditors jump into the nitty-gritty of risk assessment procedures and audit planning, a solid understanding of these fundamental concepts is paramount. Why? Because it forms the bedrock of a successful audit. Imagine trying to navigate a city without understanding cardinal directions—it would be challenging and prone to errors.

By grasping these fundamentals, auditors are better equipped to tailor their audit plans, ensuring they are attuned to the unique risks each business faces. In the next section, we will delve into the specific procedures that bring these principles to life.

In the realm of audit planning and Risk Assessment in Audit Planning , a crucial aspect is understanding the various components of risk that play a pivotal role in ensuring the reliability of the audit process. Let's delve into these components:

Identifying Key Components of Risk

Audit, at its core, faces three primary components of risk:

Inherent Risk

Inherent risk is like the DNA of a business; it's the risk that exists even if everything is operating as it should. This could be due to the nature of the industry, economic conditions, or the complexity of certain transactions. For instance, if a business operates in a volatile market, the inherent risk would be higher.

Control Risk

Now, imagine a set of traffic lights controlling the flow of cars. Control risk is akin to assessing how effective these traffic lights are in preventing accidents. It's the risk that the internal controls of a company may not catch or prevent errors or fraud. If a company lacks robust internal controls, the control risk is higher.

Detection Risk

Detection risk is about the auditor's ability to spot mistakes or irregularities during the audit. Think of it as the sharp eyes of a detective scanning through evidence. If an auditor is not thorough in their examination, detection risk increases, and potential issues may go unnoticed.

Interplay of These Components in the Audit Process

In the time of audit, these components interact dynamically. Imagine a delicate balance beam routine at the Olympics:

High Inherent Risk

The auditor recognizes a business operating in a high-risk industry. This means they need to be extra cautious and thorough in their audit procedures.

High Control Risk

If internal controls within a company are not up to snuff, the auditor may need to adjust their audit plan to account for this increased risk.

High Detection Risk

If an auditor's procedures are not meticulous, there's a risk they might miss critical errors or fraudulent activities during the audit.

Navigating through the intricacies of risk assessment, risk analysis, and audit planning with precision is key to a successful audit.

In the realm of audit planning, Risk Assessment Procedures play a pivotal role in ensuring a thorough and effective examination of financial statements and processes. These procedures serve as the compass, guiding auditors through the complex terrain of potential risks.

Risk assessment in audit planning-2

  • Risk Identification

Risk Identification marks the starting point of the audit journey. Auditors systematically unearth and recognize risks that could impact the accuracy of financial statements. These risks can stem from various sources, including internal processes, external market conditions, or regulatory changes.

  • Risk Analysis

Once risks are identified, the next step is Risk Analysis . Here, auditors delve deeper to understand the nature and magnitude of each risk. This involves evaluating the likelihood of occurrence and the potential impact on the financial statements. By assigning a level of significance to each risk, auditors prioritize their focus during the audit.

  • Risk Response

Armed with a comprehensive understanding of identified risks, auditors proceed to Risk Response. This phase involves developing strategies to mitigate or manage the identified risks. It's about crafting a tailored approach to address each risk, ensuring that the audit process remains robust and effective.

  • Ongoing Risk Assessment

Importantly, risk assessment isn't a one-time endeavor confined to the planning phase. Ongoing Risk Assessment is a continuous process that unfolds throughout the audit engagement. Auditors remain vigilant, adapting to changes in the business landscape and promptly addressing emerging risks.

Incorporating advanced tools and technologies, auditors can streamline these procedures, enhancing efficiency and precision. According to a survey by the Association of Certified Fraud Examiners, 80% of respondents reported that technology has had a positive impact on their ability to detect and prevent fraud during the audit process.

In the world of auditing, success hinges on a fundamental process: Risk Assessment. This critical step doesn't just tick a box; it's the compass guiding the entire audit journey. Let's delve into how a meticulous risk assessment isn't just a protocol but a key to unlocking more effective and streamlined audits.Top of Form

Strategic Insight

Risk assessment isn't a checkbox exercise; it's a strategic tool. It provides auditors with specialized lenses, allowing them to focus on the nuanced landscape of challenges and opportunities within an organization.

Components of Risk

Understanding the intricacies of risk components, such as inherent risk, control risk, and detection risk, gives auditors a tailored perspective and a comprehensive view of potential pitfalls.

Roadmap for Focus

A robust risk assessment isn't arbitrary; it's a roadmap. It guides auditors to concentrate on areas of genuine significance. Studies show that audits guided by thorough risk assessment are 25% more likely to meet their objectives.

Questioning for Precision

It's more than ticking boxes. A comprehensive risk assessment empowers auditors to pose the right questions: What threats exist to the organization's financial health? Where do internal controls need strengthening?

Efficiency Boost

Efficiency is the ally of effectiveness. A focused risk assessment doesn't just elevate audit quality; it streamlines the entire process. Organizations practicing effective risk assessment report a 15% reduction in audit time .

In essence, risk assessment isn't a bureaucratic hurdle; it's the secret ingredient to audit triumph. It provides clarity of vision, guides auditors with precision, and ensures each audit isn't merely a task completed but a mission accomplished.

Risk assessment is a crucial step in audit planning, but it comes with its fair share of challenges. Identifying and overcoming these challenges are essential for conducting effective and reliable audits.

Risk assessment in audit planning-3

  • Lack of Data Accuracy : One common hurdle is the availability and accuracy of data. In many cases, auditors may encounter incomplete or outdated information, making it difficult to assess risks accurately.
  • Subjectivity in Risk Perception : Another challenge is the subjective nature of risk perception. Different team members may have varied views on the severity of a risk, leading to potential discrepancies in the assessment process.
  • Dynamic Business Environments : Rapid changes in the business environment can pose challenges in risk assessment. Industries are evolving, and auditors must adapt to new technologies, regulations, and market trends.
  • Inadequate Communication : Poor communication among audit team members and with the client can impede the risk assessment process. Clear communication is vital to understanding the nuances of the business and potential risks involved.
  • Resource Constraints : Limited time and resources can hinder a thorough risk assessment. In a fast-paced business world, auditors may face pressures to complete assessments quickly, potentially overlooking critical details.

Challenges in risk assessment and audit planning are part of the audit landscape, but auditors can proactively address these issues with effective strategies. Here are practical solutions to navigate common challenges associated with risk assessment, risk analysis, and audit planning:

  • Data Quality Improvement: To combat issues related to data accuracy in Risk Assessment, auditors should advocate for regular data quality assessments. Establishing protocols for data validation and verification ensures that the information used in Risk Analysis and audit planning is reliable.
  • Standardized Risk Criteria: Addressing the subjectivity in Risk Perception involves implementing standardized risk criteria. Developing a clear framework with predefined risk categories and severity levels helps align the team's understanding of risks during Audit Planning and Risk Assessment.
  • Continuous Training and Education: In the face of dynamic business environments, ongoing training is essential for effective Risk Assessment and Audit Planning. Auditors should invest in professional development to stay updated on industry changes, emerging risks, and new technologies that could impact the audit process.
  • Enhanced Communication Protocols: Improving communication within the audit team and with the client is crucial for successful Risk Assessment and Audit Planning. Establishing regular meetings, feedback sessions, and transparent communication channels fosters a collaborative environment, ensuring everyone is on the same page during Risk Analysis.
  • Effective Time Management: Addressing resource constraints in Risk Assessment requires effective time management. Auditors should prioritize tasks based on risk significance during Audit Planning and allocate resources accordingly. This may involve setting realistic timelines and expectations with clients.

By adopting these strategies, auditors can enhance the overall effectiveness of the Risk Assessment process in Audit Planning.

In the dynamic field of auditing, staying ahead is not just a choice but a necessity. One effective way to boost your auditing prowess is by becoming a Certified Information Systems Auditor (CISA).

Why CISA Certification Matters?

In the realm of auditing, the Certified Information Systems Auditor (CISA) certification holds exceptional relevance. It signifies your expertise in auditing, controlling, and monitoring information systems—an invaluable asset in today's cybersecurity landscape.

Sprintzeal's CISA Course Benefits

Choosing Sprintzeal for your CISA journey brings several advantages:

  • Complete Coverage: Sprintzeal's course thoroughly addresses all CISA domains, ensuring comprehensive knowledge.
  • Expert Guidance: Learn from industry professionals, gaining practical insights to apply in real-world scenarios.
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Investing in Sprintzeal's CISA course isn't just about a certification; it's a strategic move to empower your professional journey. The skills acquired will significantly strengthen your ability to conduct effective risk assessments in audit planning, a critical aspect of ensuring audit success.

In the world of auditing, a robust risk assessment is the linchpin for a triumphant audit process. Delving into the nuances of inherent, control, and detection risks empowers auditors to navigate challenges adeptly.

As we conclude, it's evident that a meticulous approach to risk identification, analysis, and response is indispensable for audit planning and effectiveness. Remember, the strength of a resilient audit plan lies in foreseeing, evaluating, and mitigating risks.

Ready to advance your skills? Explore the Certified Information Systems Auditor (CISA) course with Sprintzeal . For more details, visit Sprintzeal or click here to contact us.

What is a risk assessment in auditing?

A risk assessment in auditing is the process of identifying and evaluating potential risks to financial statement accuracy.

What is risk assessment in planning?

Risk assessment in planning for audits involves evaluating uncertainties to create an effective audit strategy.

What are risk factors in audit planning?

Risk factors in audit planning are conditions impacting financial statement reliability, guiding strategy development.

What does risk assessment mean?

Risk assessment is the proactive evaluation of potential risks' impact and likelihood, ensuring accurate reporting in auditing.

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Niharika Chaurasia

Niharika Chaurasia

Niharika is a technical content writer in the education niche with vast experience in creating content for certifications and training programs. She creates engaging, easy-to-understand, and valuable content for both beginners and professionals aspiring to enhance their careers.

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The first article in this series of two on Paper P7 case study questions discussed question style, what to look for in the requirements, how higher-level skills are tested, and the meaning of professional marks within a question requirement. This second article goes through part of a typical Section A case study question, applying the recommended approach described in the previous article. This approach comprises four stages.

Stage 1 – understanding the requirement

The first thing to do is to read and fully understand the question requirement. Here is the requirement we will be looking at in this article:

‘Prepare a report, to be used by a partner in your firm, in which you identify and evaluate the professional, ethical, and other issues raised in deciding whether to accept the appointment as provider of an assurance opinion as requested by Petsupply Co.’ (12 marks)

Note: this requirement includes two professional marks.

Having read the requirement, break it down. You are asked to do two things:

  • identify, ie state from the information provided
  • evaluate, ie discuss from a critical point of view.

The requirement asks you to consider ‘professional, ethical, and other issues’. This could cover a wide range of considerations, such as:

  • ethics: independence, competence, conflicts of interest, confidentiality, assessing integrity
  • professional issues: the risk profile of the work requested, the fee – and whether it is sufficient to compensate for high risk, availability of staff, managing client expectations, logistical matters such as timing, legal and regulatory matters – such as money laundering, and (in some cases) obtaining professional clearance
  • other issues: whether the work ‘fits’ with the commercial strategy of the audit firm, the potential knock-on effect of taking on the work – such as the impact on other clients, or on other work performed for this client.

You are asked to produce a report, so remember that the professional marks available will be awarded for using the correct format, the use of professional business language, and for presenting your comments as a logical flow culminating in a conclusion.

From reading the requirement, you know that the question scenario will be based on a potential assurance assignment and will be broadly based around acceptance issues.

Stage 2 – reading the scenario

When reading through the detail of the scenario, you should now be alert to information relevant to this requirement. Highlight important points that you think are relevant to the scenario and remember to focus on issues that could affect your acceptance of a potential assurance assignment.

Now read the following extract from the scenario and highlight the salient points – remember to look out for any factors relevant to the ethical, professional, and other issues described above.

Extract: You are a senior manager in Dyke & Co, a small firm of Chartered Certified Accountants, which specialises in providing audits and financial statement reviews for small to medium-sized companies. You are responsible for evaluating potential assurance engagements, and for producing a brief report on each prospective piece of work to be used by the partners in your firm when deciding whether to accept or decline the engagement. Dyke & Co is keen to expand the assurance services offered, as a replacement for revenue lost from the many small‑company clients choosing not to have a statutory audit in recent years. It is currently May 2007.

Petsupply Co has been an audit client of Dyke & Co for the past three years. The company owns and operates a chain of retail outlets selling pet supplies. The finance director of Petsupply Co recently communicated with your firm to enquire about the provision of an assurance report on data provided in the Environmental Report published on the company’s website. The following is an extract from the e-mail sent to your firm from the finance director of Petsupply Co:

‘At the last board meeting, my fellow directors discussed the content of the Environmental Report. They are keen to ensure that the data contained in the report is credible, and they have asked whether your firm would be willing to provide some kind of opinion verifying the disclosures made. Petsupply Co is strongly committed to disclosing environmental data, and information gathered from our website indicates that our customers are very interested in environmental matters. It is therefore important to us that Petsupply Co reports positive information which should help to retain existing customers, and to attract new customers. I am keen to hear your views on this matter at your earliest convenience. We would like verification of the data as soon as possible.’

You have looked at Petsupply Co’s Environmental Report on the company website, and found a great deal of numerical data provided, some of which is shown below in Table 1.

Table 1: Petsupply Co's environmental report – numerical data

Petsupply Co: environmental key performance indicator (KPI)/target
Actual KPI year to 30 April 2007
Actual KPI year to 30 April 2006Reason for variance/trend
To spend $1m per annum on developing environmentally-friendly packaging and bags
$1.1m spent on relevant development
$0.75m spent on relevant development
Petsupply Co has more liquid funds available in the year to 2007 to spend on development projects
To increase the amount of waste recycled by 10% per annum
50 tonnes of waste recycled
25 tonnes of waste recycled
Petsupply Co has doubled the amount of waste recycled due to installation of recycling bins at all
stores
To ensure that at least 90% of our customers are ‘very happy’ with Petsupply Co’s environmental policies
95% ‘very happy’70% ‘very happy’Customers complete surveys in store to rate our policies; data shows that customers are extremely happy with our progress on environmental matters

Stage 3 – take time to think about the requirement and the scenario

As discussed in the previous article, you must take time and not rush to answer. When evaluating this particular scenario try to think widely about the information provided. Your answer should cover a broad range of issues rather than concentrating on one or two. Your comments must be tailored to the scenario. It is pointless, for example, to write about a general acceptance issue which is not specifically related to Petsupply Co.

It is important to appreciate that few marks will be available for stating the issue. The higher-level skill marks in this question will be awarded for a discussion of why the issue is relevant to the decision about whether or not to provide the assurance service to Petsupply Co. The requirement is to evaluate the scenario and therefore it is crucial to demonstrate an appreciation that there may be two conflicting sides to the discussion.

Table 2 shows an example of a thought process which identifies the issues and explains why each issue is relevant to the requirement; the issues are shown in the order in which they appear in the question.

Table 2: Example of a thought process which identifies issues and shows relevance to the requirement

Issue from the scenarioWhy relevant to the requirement
Your firm is keen to provide more assurance services due to loss of income from audit services
The engagement will provide an extra source of revenue, and accepting the assignment fits the commercial strategy of Dyke & Co. But, the firm should not put the fact that it wants more revenue from providing assurance services above the more important consideration of ethical and professional issues, and the overall assessment of the risk attached to the assignment. It will also be important to consider whether the assignment is a one-off engagement or is likely to be an ongoing service.
Petsupply Co has been a client for three yearsYour firm will already possess good business understanding, which will reduce the risk associated with the engagement, and should also cut down on planning time. However, Dyke & Co must consider various ethical matters, as Petsupply Co is already an audit client, including the appropriateness of providing a non-audit service, and the impact on the level of fees received from an existing client. It is irrelevant to discuss whether there are general threats, such as financial interests in Petsupply Co, as Dyke & Co already provides the audit service, and should therefore already have conducted general ethical clearance.
The assurance service requested is to provide an opinion on environmental key performance indicators
This appears to be a very specialist assignment and it is questionable whether a small firm of accountants would possess relevant skills and experience. However, the firm could either spend time and money training staff to perform the assignment, or bring in specialists to perform the work. This would enable Dyke & Co to build up experience in this area, enabling it to provide further services of this type, which fits in with the firm’s commercial strategy. However, whether the skills are developed in house, or bought in, there will be considerable expense involved; Dyke & Co would need to carefully consider the fee charged as the firm will want to recover as much cost as possible.
Petsupply Co is keen to disclose positive data in order to maintain customer satisfaction
There is a high inherent risk attached to the environmental data. Petsupply Co has a clear reason to manipulate the data in order to disclose that targets are being met. In deciding whether to accept the assignment, Dyke & Co must consider whether this risk can be reduced to an acceptable level. It may be difficult for Dyke & Co to challenge the directors with confidence about the data, given its lack of experience in this area.
Petsupply Co requires a ‘verification’ of the environmental data
The client appears to have an unrealistic expectation of what an assurance service can provide. Before any decision is made about acceptance, Dyke & Co must explain to the client that its report will not verify or certify the data, and is likely to provide at best ‘limited assurance’ over the data – the expectation of the client clearly needs to be managed.
Petsupply Co wants the work performed as quickly as possible
As discussed above, Dyke & Co will need to either develop or buy-in expertise in this area, and due to the high inherent risk identified above, the firm will want to spend plenty of time gathering evidence. The client again may have unrealistic expectations about the timeframe in which the opinion could be provided.
Some of the data shown in the environmental report is not well defined
It would be relatively easy to gather evidence on the amount spent on development, as this is similar to a substantive audit procedure but it may be hard for Dyke & Co to substantiate if the money has really been spent on environmentally-friendly packaging.
Quantifying how much waste has been recycled will depend on the strength of the system put in place by Petsupply Co to capture the data. Equally, it would be difficult to gather detailed evidence to reach an opinion on customer satisfaction as it is a very subjective measure, not suitable for quantification. All of the above points suggest that the engagement will involve testing some subjective issues, and possibly relying on the controls put in place by the client, both of which have an impact on the overall risk assessment of the work requested.

Table 2 is not an answer, it is a thought process. This is what you should be thinking about after reading through the scenario. The previous article stressed the importance of thinking through the scenario. It may help to jot these ideas down in an answer plan before making a start on your written answer, as this will help you to prioritise the points and give the report a logical flow.

Stage 4 – writing the report

The requirement states that two professional marks are available. As discussed in the previous article, these marks are not for the technical content of the answer, but for the way the relevant points are communicated. The report will be evaluated on the following:

  • Use of a report format – a brief introduction, clear separate sections each discussing a different point, and a final conclusion.
  • Style of writing – the report is addressed to the partner and so language should be appropriate. You do not need to explain things that would be obvious to a partner, and you must be tactful.
  • Clarity of explanation – make sure that each point is explained simply and precisely, and avoid ambiguity.
  • Evaluation skills – demonstrate that each point may have a positive and a negative side.

Remember, when answering any question requirement it is quality not quantity that counts. You should make each point succinctly and remain focused on the specific requirement. Questions can be time pressured, but it is important to remember that you should be able to read the requirement, think about it, and write an answer in the time available. This means that there is only a limited amount of time available for actually writing the answer, so keep it short and to the point. Irrelevant waffle earns no marks and will detract from the professional skills evaluation. What follows is an outline report format for this requirement:

Introduction

  • Report is internal, addressed to a partner, covering proposed assurance service for existing audit client

Section 1 – ethical matters

  • Provision of non-audit service
  • Impact on total fee from client
  • Competence to perform work – specialised engagement

Section 2 – risk-related matters

  • High inherent risk – figures prone to manipulation
  • Data highly subjective
  • Need to rely on systems put in place by client

Section 3 – commercial matters

  • Fee will have to be high enough to compensate for high risk
  • Fee may need to compensate for specialists if used
  • Strategic fit – assignment in line with commercial goals of Dyke & Co
  • Build up experience in non-audit service
  • Ascertain whether assignment will be recurring

Section 4 – other matters

  • Managing client expectation regarding type of opinion sought
  • Managing client expectation regarding timeframe
  • Summary of key issues and decision on acceptance

Note: not all of the above points are necessary to secure a pass mark; the marking scheme is also flexible enough to cater for comments that may not appear in the ‘model answer’.

This article shows how to approach one requirement from a typical Section A question in Paper P7. It is important to practise technique by attempting as many questions as possible, starting with the Pilot Paper for Paper P7.

Written by a member of the Paper P7 examining team

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internal audit risk assessment

Planning an Internal Audit Risk Assessment

Nov 20, 2023 Stefan van Duyvendijk

Internal auditing ensures an organization’s financial integrity, compliance with regulations, and overall operational efficiency. One of the first steps in carrying out an effective internal audit is to perform an internal audit risk assessment. This planning process is the foundation for a successful audit, helping auditors identify and prioritize significant risks and areas of concern within an organization.

What Is an Internal Audit Risk Assessment?

In an internal audit risk assessment process internal auditors use to evaluate an organization’s potential risks and vulnerabilities.

During the risk assessment process, internal auditors identify possible risks and determine how likely they are to negatively affect the organization’s ability to achieve its objective and their potential impact. This process can involve analyzing financial data, operational processes, compliance requirements, and external market conditions to determine where risks might emerge.

Finally, the internal auditors consider whether the company’s internal controls are adequate to keep risk at a manageable level.

Importance of Internal Audit Risk Assessment

The primary purpose of an internal audit risk assessment is to identify risks that could threaten an organization’s ability to meet its business objectives, whether they are financial, operational, or compliance-related. By pinpointing these high risk areas, organizations can take proactive measures to mitigate them.

The risk assessment process also helps auditors prioritize their auditing efforts. In every organization, time and budget are limited, and it’s impossible for the internal audit function to test 100% of all transactions, balances, controls, and compliance efforts.

An internal audit risk assessment helps prioritize auditing efforts by allowing auditors to focus on high-risk areas, ensuring they allocate resources efficiently to address the most critical issues.

Finally, taking a risk-based approach supports decision-making by providing valuable insights to management and the board of directors. This information helps in making informed decisions to improve internal controls, streamline business processes, and allocate resources effectively.

Which Factors Should Be Considered in Internal Audit Risk Assessment?

A thorough internal risk assessment considers a wide range of factors. While the exact factors might vary from company to company, some common areas of focus include the following:

The Industry and Regulatory Environment

Understanding the industry-specific risks and regulatory requirements is crucial. Changes in industry trends or new regulations can have a significant impact on an organization’s risk profile.

Financial Data

Analyzing financial statements, budgets, cash flow forecasts, and other data from the enterprise risk management (ERM) system helps identify financial risks, such as liquidity issues, fraud, or improper accounting practices.

Operational Processes

Evaluating operational processes reveals potential inefficiencies, process bottlenecks, and areas susceptible to fraud or error.

Compliance Requirements

Ensuring compliance with applicable laws and regulations is a critical aspect of risk assessment. Non-compliance can result in legal consequences and reputational damage.

External Factors

Factors beyond an organization’s control, such as economic conditions, geopolitical events, and technological changes, can introduce new risks.

Key Steps to Conduct an Effective Internal Audit Risk Assessment

The internal audit team must maintain a delicate balance between being independent and objective and adding value to the organization.

To conduct a successful internal audit risk assessment, follow these key steps:

Step 1: Define the purpose and objectives of the assessment

Clearly define the audit objectives and scope to ensure everyone understands the audit’s purpose. Objectives of internal audits might include preventing or detecting fraud, improving operational efficiency, enhancing the internal control environment, or providing recommendations guided by best practices.

Step 2: Meet with stakeholder groups

Before the internal audit team develops a work plan, they should meet with the various stakeholder groups, including management, the audit committee, human resources, and information technology (IT). In addition, it can be helpful to gather the results of any self-assessments performed by different departments.

This communication allows the internal audit team to listen to desired outcomes, set expectations for the results, and identify areas where the audit can add value.

Step 3: Identify risks and assess their potential impact and likelihood

Systematically identify and document potential risks across all areas of the organization. Evaluate the impact and likelihood of each identified risk. This assessment helps prioritize risks.

Step 4: Develop a risk rating methodology

During the annual risk assessment process, the internal audit team will identify many potential risks. So how can they assess those risks in a uniform way that allows the most critical risks to rise to the top?

Creating risk ratings helps auditors categorize risks and objectively weigh their importance. For example, the audit team might base their ratings on the potential financial losses from an adverse event, such as potential fraud losses or compliance penalties. The rating system might also consider other qualitative aspects, such as reputational damage.

The risk rating methodology doesn’t have to be perfect—it’s more important to consider the end goal, which is to prioritize key risks and develop risk-based audit plans.

Step 5: Develop an internal audit plan

Based on the risk rating, develop an annual audit plan that outlines the audit approach, procedures for all audit areas, and timeline.

Which Tools Are Helpful in Planning an Internal Audit Risk Assessment?

Several tools and techniques can assist in planning an internal audit risk assessment:

  • Risk assessment software. Specialized software can streamline the risk assessment process by providing data analysis and visualization tools.
  • Data analytics. Leverage data analytics to identify anomalies or patterns that may indicate potential risks.
  • Interviews and surveys. Engage with key stakeholders through interviews and surveys to gather insights on potential risks. There may be areas of the organization where internal audit doesn’t have the expertise to identify every potential risk or emerging risks that are new to the industry or organization. In these cases, auditors may need to rely on a subject matter expert to inform their risk analysis.

How to Effectively Monitor and Review the Effectiveness of Internal Audit Risk Assessment

To maintain the internal audit department’s credibility, it’s important to continuously evaluate its efficiency and effectiveness.

The audit committee and the CFO should review the quality of the internal audit function on an annual basis. Some steps for this review include:

  • Looking at the internal audit program, including a timetable of key events and projects.
  • Periodically reviewing whether the organization would benefit from a third-party assessment of the internal audit function.
  • Reviewing for any potential conflicts of interest.
  • Ensuring the audit committee is informed of the results and related actions for improvement of the internal audit assessment process in a timely manner.
  • Monitoring the timely implementation of any corrective actions to the company’s risk management program.
  • Asking questions of the internal audit function, such as:
  • Is internal audit looking at the right things?
  • Is the team going deep enough to discover what the problems are and their root causes?
  • Are auditors bringing issues to the attention of the audit committee quickly?
  • Do auditors demonstrate independence, objectivity, and professional judgment?
  • Do internal auditors stay up-to-date with the latest and best practices by attending conferences or webinars sponsored by the Institute of Internal Auditors (IIA) or other professional associations?
  • Do they offer advice or insight to improve internal controls, operations, financial reporting , and support the company’s strategic plan?
  • Are the department reports to senior management clear and concise?
  • Do they use resources and tools effectively?

The work doesn’t end with the risk assessment. Continuous monitoring and review are essential.

Key Takeaways

Planning an internal audit risk assessment is a fundamental step in the internal auditing process. It helps organizations identify, prioritize, and address inherent risk that could impact their financial stability, operational efficiency, and compliance. By considering various risk factors, such as industry trends, financial data, operational processes, and compliance requirements, and by using the right tools and techniques, organizations can conduct effective risk assessments that lead to better decision-making and risk mitigation strategies.

Remember that a well-executed internal audit risk assessment is not just a compliance requirement but a strategic tool that can drive organizational success and safeguard its future. By empowering the internal audit department and embracing this proactive approach, organizations can stay ahead of potential risks and enhance their overall resilience.

case study audit planning & risk assessment

Stefan van Duyvendijk

Stefan van Duyvendijk is the Accounting Operations Evangelist at FloQast. Previously, Stefan served as the Corporate Controller for Kodiak Cakes, a private equity owned, leading consumer packaged food company, and as a Controller for Skullcandy, a multinational headphone CPG. These positions followed his five years at KPMG. His experience includes ASC 606 implementation, reduction of financial close timelines, accounting operational improvements, business combinations, financial statement audits, SOX audits and implementation, management reporting, debt, treasury, and systems integrations/implementation.

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CPA EXAM COACHING

How To Write An Effective Audit Planning Memo In CPA Canada Cases

If you have selected Assurance as an elective in your CPA Canada PEP, or it’s your role for the CFE, writing an effective audit planning memo will be the key to achieving multiple competent grades. Let’s walk through the 4 steps of writing an effecting audit planning memo: R isks, A pproach, M ateriality, P rocedures (abbreviated as RAMP ).

1. Identifying Overall Financial Statement Level (OFSL) Risk 

Your first step in writing an audit planning memo will be to assess the overall financial statement level risks (OFSL) . OFSL represents the risk of an audit engagement and risk of material misstatements (RMM) . This assessment will be the foundation of determining what approach should be used to gather the appropriate evidence, the level of materiality we should accept, and the procedures required to form an audit opinion. 

It’s important to analyze case facts for factors that either increase or decrease the level of risk. A well-rounded risk response will contribute some form of a balanced response between the two. As you read the case initially, mark factors you can refer back to for this assessment opportunity.

For example, in the case below, the second paragraph says: “We’re growing at an incredible pace and we can’t keep up.” This is a trigger that increases the audit risk.

case study audit planning & risk assessment

When writing your response, using bullets is a great strategy to use time effectively. Each bullet should discuss what the risk is and why the impact increases or reduces overall risk. Students who don’t achieve “Competent” are often the result of not having a sufficient amount of risks, or lacking depth in the risk impact. Be sure to only discuss new risk factors for this year.

Some common risk factors include:

  • Bank will be relying on bank covenants imposed on Company ABC. This increases OFSL risk as there is a risk of management bias to ensure financials meet the covenant.
  • There are several F/S errors present. This increases OFSL risk that there are additional accounting errors that have yet to be identified.
  • We have audited Company ABC for several years. This decreases OFSL risk as we are familiar with the business and their processes.
  • Company ABC has implemented a new software this year. This increases OFSL risk as we are unfamiliar with the controls surrounding the new software and this could be resulting in errors in the financial statements.

Be sure to conclude if the OFSL is high, moderate or low , and why (i.e. high because factors increasing risk outweigh factors that decrease risk). The vast majority of the time you’ll conclude the OFSL risk as high due to the nature of CPA exams.

For example, here is an effective way to write the risks and conclude:

case study audit planning & risk assessment

2. Identifying the Audit Approach

To determine the overall approach for gathering audit evidence, assess the control risk on an overall basis. If controls can be relied on, typically a combined approach will be used. If controls are determined to be weak, a substantive approach is concluded. To conclude on this, identify case facts related to the control environment, the nature of the business, and explain the impact of these items on the audit. 

Some common considerations include:

  • New systems and processes. Will increase control risk as these processes have not been relied on before and auditors are unfamiliar with them. 
  • Company ABC has multiple locations . This will make it difficult for auditors to visit and apply a substantive approach on all locations. 

For example, here’s how the approach was written for this mock exam case:

case study audit planning & risk assessment

3. Determining Materiality

Materiality is a product of user needs, not audit risk. Therefore, you must identify the key users of the F/S and what their needs are. For example, potential investors may be concerned with overall profitability, but the Bank could be more interested in debt and equity based on covenants. Understanding these user needs will provide support for your chosen materiality base . Calculate materiality where possible on revised F/S (after corrections). 

Performance Materiality (PM) is based on the auditor’s professional judgment, and is associated with the risk of the engagement. This serves to mitigate errors that may not be detected during the testing phase. You should get in the habit of being able to include both overall and PM in your CPA case answers.

For example, here’s a complete materiality section:

case study audit planning & risk assessment

4. Preparing Procedures

Procedures should be written for high risk transactions, accounts or assertions. When writing audit planning memo in CPA cases, it’s often written for all Financial Reporting (FR) issues. You should identify the specific risk, the related assertion and then the procedure . For this reason, procedures are often abbreviated to “ RAP” (risk, assertion, procedure). Here’s an example of a risk: “Company ABC has pressure to meet a debt to equity covenant from the bank. There is a risk that due to management bias, the accounts payable account for what is owed is not complete” . Then write the assertion, which would be completeness.

Below are all the audit assertions:

Transactions/Events (Income statement): Completeness, Occurrence, Cut-off, Classification, Accuracy (“COCCA”)

Balances (Balance sheet): Completeness, Existence, Rights & Obligation, Valuation/Allocation (“CERV”)

Presentation and Disclosure: Occurrence, Rights/Obligations, Completeness, Classification/Understandability, Accuracy/Valuation

In CPA cases, we most often use the Income Statement and Balance Sheet assertions. You can remember them with the saying: IS COCCA CCERV’d in BoSton. There are more clever memory aids in my technical summary notes .

Assertions should have the GL accounts next to them. For example, Completeness (A/P) shows the assertion and account. This is not necessary when you write the RAP with FR issues though (see example below).  

Audit procedures should be specific and detailed by demonstrating a step-by-step process . To be specific, you can use case facts such as referencing specific documents, accounts or procedures outlined for this company. The procedure should address how the risk can be looked into and how evidence will be acquired. You should also make sure their procedures are practical and realistic and avoid general statements. It also helps to write the procedures below the FR issues, as opposed to combining them at the end, because they are closely related to FR issues and you can reference FR as you write.

For example, here’s an FR issues with the audit procedure below it:

case study audit planning & risk assessment

Some common procedures include:

  • Obtain copy of all materials related to R&D and review in accordance to above criteria to determine if costs should be capitalized
  • Obtain confirmation from management that ABC CO. plans to proceed with the R&D project to ensure the recognition criteria have been met
  • Discuss with management and corroborate their responses with the R&D team, as to whether the asset is likely to be fully developed and ready for market soon, and as to the progress made on the development.
  • Inquire and review if ABC Co. has complied with all terms of the agreement to determine if there are any additional unknown costs to include with the POC% calculation
  • Vouch a sample of the contract to the supporting contracts and any revisions made to these supporting contracts. Check for the date, contract amount, and any unusual terms.

Applying this structure for audit planning memo (APM) will ensure your assessment is complete and in-depth to achieve C (competent) grade. Practice the WHY and HOW of the impact for each step of the APM to make sure to hit depth.

case study audit planning & risk assessment

A Guide to Effective Internal Management System Audits by Andrew Nichols

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CHAPTER 7: RISK BASED INTERNAL AUDIT CASE STUDIES

The following case studies give examples where an internal audit was focused on ensuring resolution of a situation that put the organization at risk, by focusing not simply on compliance to documents, but by looking to process performance, cause/effect, and the “sequence and interactions” of the processes of a management system.

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03. Planning an IS Audit

03.06. A Case Study in Developing IS Audit Plan and IS Audit Program

case study audit planning & risk assessment

To put things in practical perspective, the case study in this section illustrates how to develop a risk-based annual IS audit plan as well as a detailed IS audit program for a select audit from the plan. Although the steps can be universally followed, the case study’s audit subjects and risk assessment results are presented as generic in nature by design.

Company Overview

InnoTech Inc., a leader in renewable energy technologies, operates in a fast-paced and evolving industry. The company, established 15 years ago, has carved a niche in developing and implementing innovative energy solutions. Its product line is diverse, encompassing solar panels, wind turbines, and advanced energy storage systems. Beyond manufacturing, InnoTech also extends its expertise to consulting and maintenance services, ensuring the optimal performance of its energy solutions.

With its headquarters in the United States, InnoTech’s operations span across more than 20 countries, including significant markets in Europe, Asia, and South America. This international presence is pivotal to the company’s business strategy, allowing it to access varied energy markets and adapt to different regional energy demands.

The company’s workforce of around 8,000 employees is a blend of talent, including engineers, researchers, sales professionals, and various support roles. Organized into distinct divisions such as Research and Development (R&D), Manufacturing, Sales and Marketing, and Customer Support, each sector contributes uniquely to InnoTech’s overall success.

InnoTech’s IT infrastructure is a cornerstone of its operations and strategic growth. The company’s extensive use of IT encompasses several key areas. A comprehensive Enterprise Resource Planning (ERP) system integrates core business processes, facilitating seamless operations from production to HR management. The Customer Relationship Management (CRM) software is integral to managing customer interactions, aiding the sales team in efficiently tracking and servicing customers.

The R&D division relies heavily on specialized systems for developing new technologies and testing prototypes. In manufacturing, the Manufacturing Execution Systems (MES) play a crucial role in overseeing the production process. The adoption of cloud computing for data storage, application hosting, and analytics represents InnoTech’s commitment to modern IT solutions. The network infrastructure, including LANs and WANs, connects its global operations, while robust cybersecurity measures protect sensitive data and systems.

Managing such a diverse IT landscape presents unique challenges for InnoTech. The company needs to maintain strong IT governance to manage technologies across different locations effectively. Risks such as cybersecurity threats and system failures are constant concerns. However, these challenges also offer opportunities for leveraging IT to spur innovation and improve decision-making processes through data analytics.

Operating in a heavily regulated industry, InnoTech must adhere to various environmental, data protection, and quality standards. Compliance is not just a legal requirement but also a key factor in maintaining the company’s integrity and reputation.

Developing a Risk-based Annual IS Audit Plan

As discussed in Section 03.01, a risk-based annual IS Audit plan can be developed using the following structured approach:

  • Identify the organization’s strategies and business objectives.
  • Understand the high-risk profile of the organization.
  • Identify how the organization structures their business operations.
  • Understand the IT service support model and environment.
  • Understand business fundamentals.
  • Identify applications supporting the business operations.
  • Identify critical infrastructure for significant applications.
  • Identify major projects and initiatives.
  • Determine realistic audit subjects.
  • Develop processes to identify risks.
  • Assess risk and rank audit subjects using IT risk factors.
  • Assess risk and rank subjects using business risk factors.
  • Select audit subjects and bundle them into distinct audit engagements.
  • Determine audit cycle and frequency.
  • Add appropriate engagements based on management requests or opportunities for consulting.
  • Validate the plan with business management.

Based on the facts provided in the case study, the following priorities have been identified as the most relevant considerations while understanding the business:

  • ERP System Integration and Efficiency: Concerns around the effectiveness and integration of the ERP system across business processes including production, HR, and finance.
  • CRM System Effectiveness: Challenges in the operational effectiveness of CRM system’s capabilities in managing customer interactions, data accuracy, and its contribution to sales strategies.
  • R&D Systems and Innovation Management: Inefficiencies in the systems supporting R&D for their effectiveness in fostering innovation, managing prototypes, and integrating with other business units.
  • Manufacturing Execution System (MES) Compliance and Performance: Instances of non-compliance with industry standards and inefficiencies in production processes for MES.
  • Cloud Computing and Data Storage Security: Issues noted with cloud services for data security, compliance with data protection laws, and efficiency in storage and retrieval processes.
  • Network Infrastructure and Security: Assess the robustness, security, and efficiency of the company’s LAN and WAN, including vulnerability to cyber threats.
  • Cybersecurity Measures and Protocols: Evaluate the effectiveness of cybersecurity measures including firewalls and intrusion detection systems, and adherence to security protocols.
  • IT Governance and Policy Compliance: Inspect the IT governance framework for its effectiveness in policy implementation, regulatory compliance, and alignment with corporate objectives.
  • Data Analytics and Decision Support Systems: Audit data analytics processes for their role in strategic decision-making, accuracy of insights, and integration with business functions.
  • Employee IT Training and Awareness Programs: Review the effectiveness of IT training programs for employees, focusing on awareness and adherence to IT policies and cybersecurity best practices.

Consequently, the IT Audit universe for InnoTech Inc. can look like this:

  • Network Administration and Security
  • Windows Server Administration and Security
  • OS400 Server Administration and Security
  • Oracle Database Administration and Security
  • SAP ERP Application and General Controls
  • Payroll Application and General Controls
  • Major Capital Projects
  • Corporate Privacy Compliance
  • IT Infrastructure Configuration Management
  • IT Governance Practices

In terms of the risk assessment, the 10 entities identified in the IT Audit universe above will be ranked on likelihood and impact along the following five dimensions:

  • Impact on the organization’s financial statement reporting (F/S Impact)
  • High-level assessment of the quality of existing internal controls (I/C Quality)
  • Confidentiality measures are designed to prevent sensitive information (Confidentiality)
  • The consistency, accuracy, and trustworthiness of data (Integrity)
  • Information should be consistently and readily accessible for authorized parties (Availability)

The rating scale for “likelihood (L)” is defined as follows:

  • High (3): High probability that the risk will occur.
  • Medium (2): Medium probability that the risk will occur.
  • Low (1): Low probability that the risk will occur.

The rating scale for “impact (I)” is defined as follows:

  • High (3): There is a potential for material impact on the organization’s earnings, assets, reputation, or stakeholders.
  • Medium (2): The potential impact may be significant to the audit unit, but moderate in terms of the total organization.
  • Low (1): The potential impact on the organization is minor in size or limited in scope.

Using the IT Audit universe, scales for risk assessment ranking, as well as the definitions of rating on the “impact” and “likelihood”, an illustrated risk assessment output can look like this (using hypothetical risk ratings compiled from IS Audit team as well as the organization’s executive management):

Table: Illustrated Risk Assessment Output
F/S Impact I/C Quality Confidentiality Integrity Availability
L I L I L I L I L I
Network Adm & Security 3 2 3 2 3 3 3 2 3 3
Windows Adm & Security 3 3 3 2 3 2 3 3 2 3
OS400 Adm & Security 2 3 3 2 3 3 3 2 2 3
Oracle Adm & Security 3 2 3 1 3 2 3 2 3 3
SAP ERP Application 3 3 2 2 3 3 2 3 3 2
Payroll Application 2 2 3 3 3 3 2 2 3 3
Major Capital Projects 3 3 1 2 1 1 2 3 3 2
Privacy Compliance 2 2 3 3 3 1 1 3 2 3
IT Infrastructure Config. 3 2 2 2 3 3 3 3 3 3
IT Governance 3 2 2 2 3 3 2 1 1 3

Notes: L = Likelihood; I = Impact; H = High; M = Medium; L = Low * The final score is calculated as the sum of (likelihood * impact) for each of the five categories per line item.

Now that the risk assessment results are available, the next step is to formalize the audit plan. As discussed earlier, the audit plan consists of risk-driven audit projects, mandatory compliance reviews, stakeholder requests, and follow-up audits of previously identified significant issues. Because these tasks need to be completed using available internal audit resources, some risk-driven audit projects might not be incorporated in the plan. Before we get to the IS audit plan, we will first prioritize the IT audit universe areas based on the net scores as shown below:

Table: Prioritized IT Audit Universe Areas
IT Infrastructure Configuration Management
Network Administration and Security
Windows Server Administration and Security
Payroll Application and General Controls
SAP ERP Application and General Controls
OS400 Server Administration and Security
Oracle Database Administration and Security
Corporate Privacy Compliance
Major Capital Projects
IT Governance Practices

InnoTech Inc. has an IS audit staff of five auditors or approximately 1,000 available days for engagements after considering exception time and training. Based on the risk assessment of available audit subjects, mandatory activities, and stakeholder requests, the most effective IS audit plan is shown below:

Table: Effective IS Audit Plan
IT Infrastructure Configuration Management 37 High Q1 175
Network Administration and Security 36 High Q1 150
Windows Server Administration and Security 36 High Q2 150
Payroll Application and General Controls 35 High Q3 120
SAP ERP Application and General Controls 34 Medium Q2 100
OS400 Server Administration and Security 33 Medium Q2 90 (Outsourced)
Oracle Database Administration and Security 30 Medium Q4 85 (Outsourced)
Corporate Privacy Compliance 25 Low Q2 60 (Outsourced)
Major Capital Projects 24 Low Q2 60
IT Governance Practices 24 Low Q4 60
Internal Controls Testing & Reporting N/A N/A Q3, Q4 100
Follow-up on Findings N/A N/A Q3, Q4 85

The audit plan in the table above is based on the Innotech Inc.’s IS audit department’s understanding of the company’s strategies and objectives, historical knowledge of the control environment, and anticipated changes in operations during the next audit period.

Next, we will formalize the IS audit plan for InnoTech Inc. to ensure the efficacy and thoroughness of the auditing process by transforming the results of risk assessments and preliminary analyses into a structured and actionable audit plan. A crucial aspect of the audit plan’s formalization is its communication and approval by senior management and key stakeholders. This ensures that the audit objectives are aligned with the broader organizational goals and that there is a cohesive understanding and agreement on the plan at the highest levels of the organization. Finally, the plan includes a focus on training and preparing the audit team, especially for the more complex and high-risk audit areas. This preparation is vital in equipping the auditors with the necessary skills and knowledge to effectively navigate the intricacies of specific technologies, audit methodologies, and regulatory requirements they will encounter.

Developing an IS Audit Program for the Network Administration and Security Now that we have identified the risk-based annual IS audit plan, let’s build a detailed IS audit program for one of the high-risk audits – Network Administration and Security Audit .

From our discussion in Section 03.03, we know that an IS Audit program contains the following elements:

Define Audit Objectives

Determine audit scope, review client controls, set audit criteria, audit schedule & resourcing.

  • Evidence Gathering Techniques

Here’s an illustrated IS audit program for each of the above components in context of the Network Administration and Security Audit.

Program for Network Administration and Security Audit

The primary objective of the Network Administration and Security Audit for InnoTech Inc. is to evaluate the effectiveness, reliability, and security of the company’s network infrastructure. This includes assessing the administrative processes and security measures in place to protect against unauthorized access, data breaches, and other cyber threats. The audit will also aim to ensure that network administration aligns with the company’s IT policies and industry best practices, and complies with relevant regulatory requirements.

The scope of this audit encompasses all aspects of network administration and security within InnoTech Inc. This includes but is not limited to:

  • Physical and logical network infrastructure, including routers, switches, firewalls, and other network devices.
  • Network configuration and management processes.
  • Network security policies, procedures, and practices.
  • Access control mechanisms for network resources.
  • Incident response and recovery procedures related to network security.
  • Compliance with relevant laws and regulations, such as data protection laws.

The audit will cover all geographic locations of InnoTech Inc. where network infrastructure is deployed.

This stage involves a comprehensive review of the existing controls InnoTech Inc. has implemented for network administration and security. The review will focus on:

  • Existing network security policies and procedures, ensuring they are up-to-date and comprehensive.
  • Implementation and effectiveness of access control systems.
  • Security measures for protecting network infrastructure, including firewall configurations and intrusion detection systems.
  • Procedures for monitoring and responding to network security incidents.
  • Regular maintenance and updates of network systems.

This review aims to identify any gaps or weaknesses in current controls that could expose the company to network-related risks.

The audit criteria are the standards against which the network administration and security practices of InnoTech Inc. will be evaluated. These criteria include the following:

  • Compliance with industry standards such as ISO/IEC 27001 for information security management.
  • Adherence to internal policies and procedures of InnoTech Inc. related to network management and security.
  • Alignment with best practices in network administration and security.
  • Compliance with legal and regulatory requirements pertinent to network security and data protection.

The audit is scheduled to be conducted in Q1 and is allocated 150 audit days. The schedule is as follows:

  • Pre-audit planning: 2 weeks
  • Fieldwork: 10 weeks
  • Reporting: 3 weeks
  • Follow-up and closure: 1 week

The audit team will consist of IT auditors experienced in network administration and security. External experts may be consulted for specialized areas. Resources such as network diagrams, policy documents, and access to network management systems will be required.

This audit program is designed to provide a comprehensive evaluation of the network administration and security at InnoTech Inc. It aims to identify areas of strength and potential improvement, ensuring the network infrastructure is robust, secure, and aligns with business objectives and regulatory requirements.

Detailed Test of Controls Audit Procedures

Effective audit procedures must have the following four components:

  • Extent of sampling (# of samples to review)
  • Evidence-gathering technique to be used
  • Specific client evidence to be reviewed
  • Auditor’s actions as a part of the procedure

For the five existing controls identified in #3 (Review Client Controls) above, here are the proposed test of controls audit procedures:

Proposed Test of Controls Audit Procedures

Control 1: network security policies and procedures.

  • Number of Samples: Review 40 randomly selected policy documents.
  • Evidence Gathering Technique: Inspection
  • Specific Evidence to Review: Network security policy documents, including recent updates and change logs.
  • Examine the policies for comprehensiveness, relevance, and alignment with industry standards.
  • Verify the date of the last update and the frequency of reviews.
  • Check for signatures and approvals.

Control 2: Implementation of Access Control Systems

  • Number of Samples: Analyze access logs for 40 user accounts chosen at random.
  • Evidence Gathering Technique: Analysis and Observation
  • Specific Evidence to Review: Access control logs, user account details, and permission levels.
  • Assess whether access levels are appropriate for each user’s role.
  • Observe the process of granting, modifying, and revoking access.
  • Verify that there are no unauthorized access instances.

Control 3: Security Measures for Network Infrastructure

  • Number of Samples: Inspect configurations of 25 firewalls and 25 intrusion detection systems.
  • Evidence Gathering Technique: Inspection and Performance
  • Specific Evidence to Review: Configuration settings, security patches, and update logs of the selected devices.
  • Check if configurations align with best practice standards.
  • Ensure security patches are up-to-date.
  • Test the performance of intrusion detection systems.

Control 4: Monitoring and Response to Network Security Incidents

  • Number of Samples: Examine records of the last 25 reported security incidents.
  • Evidence Gathering Technique: Inspection and Inquiry
  • Specific Evidence to Review: Incident reports, response actions taken, and follow-up documentation.
  • Review the incident handling process for completeness and timeliness.
  • Inquire about the effectiveness of the response and any lessons learned or process improvements implemented.

Control 5: Regular Maintenance and Updates of Network Systems

  • Number of Samples: Audit maintenance logs for 40 network devices over the past year.
  • Evidence Gathering Technique: Inspection and Analysis
  • Specific Evidence to Review: Maintenance schedules, update logs, and service reports.
  • Verify that maintenance is conducted regularly and in line with industry best practices.
  • Analyze the logs for any missed or delayed maintenance activities.
  • Ensure that updates are applied in a timely manner and documented.

This wraps up the case study walkthrough of developing a risk-based annual IS audit plan and an IS audit program to give you a practical perspective on the key concepts discussed throughout this chapter. Collectively, these concepts and the example will help you effectively evaluate the IT General Controls ( Chapter 5 ) and Application Controls ( Chapter 6 ).

The complete range of areas, processes, and activities within an organization that may be subject to audit.

Auditing Information Systems Copyright © 2024 by Amit M. Mehta is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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TAPA Institute

Case study ii - human resources audit - planning phase.

Gain insights into strategic planning, risk assessment, and scoping for an impactful audit. Learn how to ensure HR compliance, optimize processes, and enhance employee management through effective audit planning and execution.

Course Curriculum

How to perform a human resources audit.

Audit Leadership - How to Perform a Human Resources Audit

Learning Objectives

Key Functions of a Human Resource Department

Course Evaluation - Thank you for participating in the program.

Case Study II - Human Resources Audit Assignment

Case Study II - HR Audit - HR Narrative

Case Study II - HR Audit - HR Findings

Risk Control Matrix for the Human Resources Audit

Risk Control Matrix for the Human Resources Audit Answer Key

Document Request List for the Human Resources Audit

Document Request List for the Human Resources Audit Answer Key

Announcement Memo for the Human Resources Audit

Case Study II - HR Audit Announcement Memo - Answer Key

Quality Control Checklist - Planning Phase

case study audit planning & risk assessment

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  1. PDF CASE STUDY AUDIT PLANNING & RISK ASSESSMENT 1. INTRODUCTION

    1. INTRODUCTION. The objective of this case study is to reinforce the messages contained in the Audit Planning & Risk Assessment Guide through the completion of a practitioner based case study that will cover the following key stages in the audit planning and risk assessment cycle: Identification of the Audit Universe and related objectives;

  2. PDF Developing a Risk-based Internal Audit Plan

    While the annual risk assessment is the minimum requirement articulated in the Standards, today's rapidly changing risk landscape demands that internal auditors assess risks frequently, even continuously. Risk-based internal audit plans should be dynamic and nimble. To achieve those qualities, some CAEs update their internal audit plan quarterly (or a similar periodic schedule), and others ...

  3. PDF RISK ASSESSMENT IN AUDIT PLANNING

    The Risk Assessment in Audit Planning (RAP) guide, drafted by the PEM-PAL Internal Audit Community of Practice (IA CoP), emphasises the importance and the impact that an effective audit strategy and audit plan for the achievement of the goals, objectives and the mission of the internal audit unit.

  4. PDF Risk Assessment Study and Audit Plan

    This Risk Assessment and Audit Plan presents a consistent methodology for Internal Audits to evaluate risk and prioritize the County's auditing activities and is intended for use as an operational internal planning tool.

  5. PDF Effective Risk Assessment and Audit Planning

    Risk is defined as the possibility that an event will occur and adversely affect the achievement of objectives. Risk assessment involves a dynamic and iterative process for identifying and assessing risks to the achievement of objectives. Risks to the achievement of these objectives from across the entity are considered relative to established ...

  6. PDF Internal Audit in Practice Case Studies

    This series of case studies is designed to support that response. Arranged under six themes common to all internal audit teams, they draw on interviews with private and public sector heads of internal audit, who explain their approaches to the challenges of, for example, building relationships with audit committees, evaluating the impact of internal audit and undertaking a risk based approach ...

  7. Understanding the Role of Risk assessment in audit planning

    Risk assessment in audit planning is a crucial step in the auditing process, involving the careful evaluation of potential risks that could impact the success and reliability of an audit. Risk assessment essentially means identifying, analyzing, and understanding the various factors that may affect the outcome of an audit engagement.

  8. Audit and assurance case study questions

    Audit and assurance case study questions. The first article in this series of two on Paper P7 case study questions discussed question style, what to look for in the requirements, how higher-level skills are tested, and the meaning of professional marks within a question requirement. This second article goes through part of a typical Section A ...

  9. Planning an Internal Audit Risk Assessment

    Learn the essential steps to plan an internal audit risk assessment. Identify key factors, strategies, and tools for effective monitoring and review.

  10. PDF Audit Planning Case Study

    Audit Planning Case Study Audit planning 1 When gaining an understanding of the client, the auditor will identify the geographic location of the client because: (a) more spread-out clients are harder to control. (b) the auditor will need to visit the various locations to assess processes and procedures at each site.

  11. Case studypempal audit planning risk assessment eng

    The objective of this case study is to reinforce the messages contained in the Audit Planning & Risk Assessment Guide through the completion of a practitioner based case study that will cover the following key stages in the audit planning and risk assessment cycle:

  12. PDF Audit Planning and risk assessment

    IIA Standard 2010.A1 requires that "The internal audit activity's plan of engagements must be based on a documented risk assessment, undertaken at least annually. The input of senior management and the board must be considered in this process". IAA Standard 2010.A2 "The chief audit executive must identify and consider the expectations ...

  13. (PDF) Risk based internal auditing within Greek banks: A case study

    Audit planning is based on the head's of internal audit and internal auditors experience without formal application of risk assessment and audit planning techniques.

  14. How To Write An Effective Audit Planning Memo In CPA Canada Cases

    1. Identifying Overall Financial Statement Level (OFSL) Risk. Your first step in writing an audit planning memo will be to assess the overall financial statement level risks (OFSL). OFSL represents the risk of an audit engagement and risk of material misstatements (RMM). This assessment will be the foundation of determining what approach should ...

  15. Chapter 7: Risk Based Internal Audit Case Studies

    The following case studies give examples where an internal audit was focused on ensuring resolution of a situation that put the organization at risk, by focusing not simply on compliance to documents, but by looking to process performance, cause/effect, and the "sequence and interactions" of the processes of a management system.

  16. Case Audit Planning Risk Assessment

    Case Audit Planning Risk Assessment - Free download as PDF File (.pdf), Text File (.txt) or read online for free. The document provides background information on the Ministry of Transport and Roads' audit universe for risk assessment and annual audit planning. It details the Ministry's budget, organizational structure, and past issues. Key areas of focus include the €60m payroll budget given ...

  17. Audit Planning and Risk Assessment

    This document discusses audit planning tools used to guide audit work such as risk assessment, materiality decisions, analytical procedures, and audit programs. It explains the audit risk model and how inherent risk, control risk, and detection risk relate. It discusses how to assess materiality and assign materiality levels. It also covers preliminary analytical procedures, planning ...

  18. 03.06. A Case Study in Developing IS Audit Plan and IS Audit Program

    To put things in practical perspective, the case study in this section illustrates how to develop a risk-based annual IS audit plan as well as a detailed IS audit program for a select audit from the plan. Although the steps can be universally followed, the case study's audit subjects and risk assessment results are presented as generic in nature by design.

  19. Case Study II

    Dive into Case Study II: Information Security Audit Planning. Explore strategic planning, risk assessment & scoping for effective audits. Learn to safeguard data, assess vulnerabilities & strengthen security frameworks through meticulous audit planning, ensuring digital resilience & compliance.

  20. Case study pempal audit planning risk assessment eng

    Unformatted Attachment Preview CASE STUDY AUDIT PLANNING & RISK ASSESSMENT 1. INTRODUCTION The objective of this case study is to reinforce the messages contained in the Audit Planning & Risk Assessment Guide through the completion of a practitioner based case study that will cover the following key stages in the audit planning and risk assessment cycle: Identification of the Audit Universe ...

  21. Case Study II

    Delve into Case Study II of planning the Human Resources Audit. Gain insights into strategic planning, risk assessment, and scoping for an impactful audit. Learn how to ensure HR compliance, optimize processes, and enhance employee management through effective audit planning and execution.

  22. case studypempal audit planning risk assessment eng

    1 CASE STUDY AUDIT PLANNING & RISK ASSESSMENT 1. INTRODUCTION The objective of this case study is to reinforce the messages contained in the Audit Planning & Risk Assessment Guide through the completion of a practitioner based case study that will cover the following key stages in the audit planning and risk assessment cycle: Identification of the Audit Universe and related objectives ...

  23. Case studypempal audit planning risk assessment eng

    None case study audit planning risk assessment introduction the objective of this case study is to reinforce the messages contained in the audit planning risk