Data Gathering

The Institute of Internal AuditorsPuget Sound Chapter Comprehensive Entry Level Training For Auditors
October 2004
Data Gathering & Documentation

Prepared By:
Susan Cohen, City Auditor City of Seattle 700 Fifth Avenue, Suite 2410 P.O. Box 94729 Seattle, WA 98124-4729 (206) 233-3801 susan.cohen@seattle.gov CIA Examination Textbooks, S. Rao Vallabhaneni Volume 2: Internal Audit Skills PP 150-190
Source:
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October 2004
Part A: Data Gathering Techniques

1. 2. 3. 4. 5. 6. 7. 8.
Questionnaires Anecdotal Records Unobtrusive Measures Checklists Interviews Focus Groups External Evidence / Confirmations Electronic Media
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October 2004
1. Questionnaires
A popular and inexpensive way of getting information. Useful if a benefit-risk analysis is needed. Hard to design effective, neutral questions.
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October 2004
QuestionnairesVarious Approaches
Field observations Review of records Published reports Interviews Mail questionnaires Telephone questionnaires Email questionnaires
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October 2004
QuestionnairesContinued
CAUTION: PROCEED WITH CARE
Good questionnaires can be seriously compromised if they are not presented in a format that is easy to read and understand by respondents.
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October 2004
2. Anecdotal Records
Anecdotal records constitute a description or narrative of a specific situation or condition. Anecdotal records can be used to to describe a specific situation such as fraud or performance evaluation.
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October 2004
3. Unobtrusive Measures
An unobtrusive measure is the one that is not readily noticeable to others.
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October 2004
4. Interviews
Structured interviews are useful for repetitive types of interviews. Unstructured interviews are useful for one-of-a-kind interviews. Interviews require adequate preparation and can be expensive.
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October 2004
5. Checklists
Checklists serve as memory aids to ensure that all required steps or actions are completed.
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October 2004
6. Focus Groups
Focus groups are very good for exploring ideas and opinions.
Advantages

Quicker Less costly Objective
Opportunity for clarification Opportunity for non-verbal communication Lots of data can be collected
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October 2004
Focus GroupsContinued
Disadvantages
May be biased toward strong-minded participants. Difficult to summarize and interpret results. Moderator bias. Each focus group observation represents a single observation, even though it is generated by a group of people.
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October 2004
7. External Evidence / Confirmations

External audit evidence is always more reliable than evidence generated internally by the organization itself.
Direct confirmations of information by outside parties will always be a critical part of an audit plan.
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October 2004
ConfirmationsContinued
Two basic types of confirmations are used: positive & negative. Positive confirmations ask for a response under any circumstances.
Negative confirmations request a response only if a disagreement exists.

Both types have their advantages and disadvantages, and it is the auditor's responsibility to determine which is appropriate under the circumstances. No sample can be considered statistical unless positive verifications are used.
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October 2004
Type of Confirmations Positive confirmations
Application Characteristics Best suited to high balance and high exposure transactions, low volume asset accounts, especially when (1) there may be a question of fictitious or overvalued assets and (2) the possibility of disputes or irregularities in the accounts is greater than normal.
Negative confirmations
Best suited for low balance and low exposure transactions, high volume asset or liability accounts.
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October 2004
8. Electronic Media
Provides quick access to vast amounts of data.
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October 2004
Part B: Documentation
1. Flow Charts 2. Work Papers
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October 2004
1. Flowcharts
Especially helpful in evaluating the internal control system. Provide a summary outline and overall description of the process of transactions in a system.
Helps provide an understanding of information flow and a basis for subsequent audit work required in testing and evaluating internal controls.
Usually supplemented by other forms of documentation (e.g., narratives, policy and procedure documentation, interviews, and internal control questionnaires).
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October 2004
FlowchartsContinued
Used to present a clear and concise picture and description of a system or operation, whether manual or automated.
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October 2004
FlowchartsBenefits
Helps the auditor understand a complex system or procedure. Helps the auditor visualize the steps of a process, and clearly and easily see missing pieces.
Helps the auditor see the big picture of a system or operation, see interfaces within and between systems, and locate control points.
Can be used to identify information paths and flows, and to trace document movement from source to destination. A good communication tool that is easy to present to others.
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October 2004
FlowchartsBasic Elements
Every flowchart should have at least three key elements:
1. The departments involved or activities undertaken.
2. Symbols to denote documents, nature of work done (e.g., posted, filed), and the sequence of documents related to the activities.
3. Information flow lines which show how documents and records are processed.
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October 2004
FlowchartsCompared to Questionnaires
Questionnaire great data collection instrument. Flowchart great data analysis instrument.
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October 2004
FlowchartsA picture is worth a thousand words?

Process Multiple Documents
Decision
Input / Output
Off-Page Connector
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October 2004
FlowchartsKey Concepts to Remember

Best used in the evaluation of controls in a complex system, not in a simple but well documented system. Used primarily to analyze a system, identify internal controls, and determine whether there is inefficiency and lack of controls. Most appropriate during the preliminary stage of an area that has not previously been audited. Provide the advantage of ease in following the flow of information (versus questionnaires and descriptive narratives).
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October 2004
2. Work Papers
Aid in the planning, performance, and quality assurance review of audit engagements. Document whether the audit engagements were achieved.
Demonstrate that sufficient work was conducted.

Link the field work to the audit report. Provide the basis for audit findings and recommendations.
Provide the principal support of the engagement communications.

Demonstrate compliance with professional auditing standards.
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October 2004
Work PapersContinued
Facilitate third-party reviews. Provide a basis for evaluating the internal audit activitys quality program.
Provide support in circumstances such as insurance claims, fraud cases, and lawsuits.
Aid in the professional development of the internal audit staff. Supervisory review of working papers determines that working papers adequately support findings, conclusions, recommendations, and audit reports.
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October 2004
Work PapersStandards
Audit documentation related to planning, conducting, and reporting on the audit should contain sufficient information to enable an experienced auditor who has had no previous connection with the audit to ascertain from the audit documentation the evidence that supports the auditors significant judgments and conclusions. Audit documentation should contain support for findings, conclusions, and recommendations before auditors issue their report.
-Government Auditing Standards AS 4.42
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October 2004
Work PapersStandards
Internal auditors should record relevant information to support the conclusions and engagement results.
-International Standards for the Professional Practice of Internal Auditing 2230 Recording Information
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October 2004
Work PapersGuidance
Working papers that document the engagement should be prepared by the internal auditor and reviewed by management of the internal audit activity. The working papers should record the information obtained and the analyses made and should support the bases for the observations and recommendations to be reported. Engagement working papers generally: Provide the principal support of the engagement communications. Aid in the planning, performance, and review of engagements. Document whether the engagement objectives were achieved. Demonstrate compliance with the standards.
-IIA Practice Advisory 2330-1
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October 2004
Work PapersEssential Elements & Ideal Characteristics

Audit work papers should contain and clearly identify the objective, scope and methodology of the audit. Audit work papers should document any sampling criteria that was used. Statistical summaries can be developed to consolidate numeric data scattered among several work papers or schedules. Audit work papers should document the results, findings, conclusions and recommendations of the audit. Audit work papers should provide sufficient evidence of the work performed to adequately support the findings, conclusions and recommendations of the audit. Audit work papers should provide evidence of supervisory reviews of the work conducted.
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October 2004
Work PapersEssential Elements & Ideal Characteristics

An adequately documented work paper should be concise but complete. Audit work papers should not be over-documented by including unnecessary forms, reports, and documents. Audit work papers should be reviewed to ensure that no issues are left open at the conclusion of the fieldwork. Audit work papers should be properly secured to prohibit unauthorized changes or removal of information.
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October 2004
Work PapersPreparation Techniques

Each engagement work paper should identify the engagement and describe the contents or purpose of the work paper. Each engagement work paper should be signed (or initialed) and dated by the internal auditor performing the work. Each engagement work paper should contain an index or reference number. The primary purpose for indexing working papers is to permit cross referencing and simplify supervisory review.
Audit verification symbols (tick marks) should be explained.

Sources of information and the date the work paper was prepared (or received) should be clearly identified.
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October 2004
Work PapersMajor Deficiencies

Insufficient summarization Incomplete purposes and/or source Oral evidence not recorded promptly and/or not corroborated or verified Not cross-indexed
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Data Gathering

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Data Gathering

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The Institute of Internal AuditorsPuget Sound Chapter Comprehensive Entry Level Training For Auditors

Data Gathering & Documentation

Part A: Data Gathering Techniques

Quicker Less costly Objective

7. External Evidence / Confirmations

Negative confirmations request a response only if a disagreement exists.

Type of Confirmations Positive confirmations

FlowchartsA picture is worth a thousand words?

FlowchartsKey Concepts to Remember

Demonstrate that sufficient work was conducted.

Provide the principal support of the engagement communications.

Work PapersEssential Elements & Ideal Characteristics

Work PapersEssential Elements & Ideal Characteristics

Work PapersPreparation Techniques

Audit verification symbols (tick marks) should be explained.

Work PapersMajor Deficiencies

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