Writing Better Audit Reports!

a 2-day Seminar for Internal Auditors

June 29-30, 2007 Facilitated by: Junn E. Nicanor Institute of Internal Auditors - Philippines

Detailed Course Outline (Day 1)

Module I Module II Module III Module IV Module V Module VI Revisiting the Standards on Communicating Results The Internal Audit Report & The Writing Process Purposes & Importance of Audit Reports Quality Standards of An Internal Audit Report The Value & Cost Components of An Internal Audit Report Report Writing Time vs Auditing Time, Scheduling Report Writing Time & Causes of Writers Block Techniques to Overcome Delays & Barriers in Report Writing Five Attributes of Audit Findings How to Gather and Organize Data for Audit Reports Guides to Preparation of Audit Reports and Auditing Information Needs of Management Qualities of Useful Auditing Information

Module VII Module VIII Module IX Module X Module XI -

Detailed Course Outline (Day 2)

Module XII Module XIII Module XIV Module XV Module XVI Writing to Inform Writing to Persuade How to Organize and Present Audit Findings, Conclusions and Recommendations Organizing & Formatting Audit Reports Presenting Results to Management & the Audit Committee Using Effective Style Writing Concisely How to Review and Edit Audit Reports

Module XVII Module XVIII Module XIX -

Module I

THE IIA STANDARDS FOR COMMUNICATING RESULTS

Reports are the output of the audit process.

Standard 2400 Internal auditors should communicate the results promptly.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards 2410.C1 Communication of the progress and results of consulting engagements will vary in form and content Depending upon the nature of the engagements and needs of the client.
1.

Practice Advisories
Although audit report format and content may vary by organization or type of audit, they should contain, at a minimum, the purpose, scope, and results of the engagement

2410 Criteria for Communicating Communications should include the engagements objectives and scope as well as applicable conclusions, recommendations, and action plans.

1. Engagement final communications may include background information and summaries. 1. Purpose statements should describe the engagement objectives. 1. Scope statements should identify the audited activities, including time and period audited and activities not audited. 1. Results should include findings, conclusions, recommendations and action plans.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards
2410 Criteria for Communicating Communications should include the engagements objectives and scope as well as applicable conclusions, recommendations, and action plans.

Practice Advisories
Observations are pertinent statements of facts.

Those findings necessary to support or prevent misunderstanding of the internal auditors conclusions and recommendations should be included in the final engagement communications. Less significant observations or recommendations may be communicated orally or through informal correspondence. Engagement observations emerge by a process of comparing what should be with what is. Observations and recommendations should be based on the following attributes: CRITERIA, CONDITION, CAUSE, EFFECT.

7.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards
2410.A1 The final communication of results should, where appropriate, contain the internal auditors overall opinion.

Practice Advisories
Conclusions (Opinions) are the internal auditors evaluations of the effects of the observations and recommendations on the activities reviewed.

They usually put the findings in perspective based upon overall implications. Engagement conclusions, if included in the engagement report, should be clearly identified as such. Conclusions may encompass the entire scope of an engagement or specific aspects. They may cover but are not limited to whether the operating or program objectives and goals conform with those of the organization, whether the organizations objectives are met, and whether the activity under review is functioning as intended.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards
2410.A2 Engagement communications should acknowledge satisfactory performance.

Practice Advisories
1. Engagement communications should include recommendations for potential improvements and acknowledge satisfactory performance for corrective action. Recommendations are based on the internal auditors observations and conclusions. They call for action to correct or improve existing conditions. May suggest approaches to correcting or enhancing performance. May be general or specific.
10.

Engagement client accomplishments (improvements since the last engagement) or the establishment of a well controlled operation, may be included in the engagement final communication.

- This may be necessary to fairly represent the existing conditions; to provide a proper perspective / appropriate balance to the engagement final engagement.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards Practice Advisories

1. The engagement client views about engagement 2410.C1 conclusions and recommendations may be included Communication of the progress in the engagement communications. and results of consulting engagements will vary in form and content depending upon the nature 12. As part of the internal auditors discussions with the of the engagements and needs of engagement client, the internal auditor should try to the client. obtain agreement on the results of the engagement and on the plan of action to improve operations as needed. If they disagree about the engagement results, the engagement communications may state both positions and the reasons for the disagreement. The engagement clients written comments may be included as an appendix to the engagement report. Alternatively, the engagement clients views may be presented in the body of the report or cover letter.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards Practice Advisories

1. Certain information may not be appropriate for 2410.C1 disclosure to all report recipients because it is Communication of the progress and privileged, proprietary or related to improper or Results of consulting engagements illegal acts. Such information, however, may be will vary in form and content disclosed in a separate report. depending upon the nature of the engagements and needs of the client. 1. Interim reports may be written or oral and may be transmitted formally or informally. Communicate information that requires immediate attention Communicate a change in engagement scope for the activity under review to keep management informed of engagement progress when engagements extend over a long period. The use if interim reports does not diminish or eliminate the need for a final report.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards Practice Advisories
1. A signed report should be issued after the engagement is completed. Summary reports highlighting engagement results may be appropriate for levels of management above the engagement client. May be issued separately from or in conjunction with the final report. Signed means that the authorized internal auditors name should be manually signed in the report. Alternatively, the signature may appear on a cover letter. The internal auditor authorized to sign the report should be designated by the chief audit executive. If engagement reports are distributed by electronic means, a signed version of the report should be kept on file by the internal audit activity

2410.C1 Communication of the progress and results of consulting engagements will vary in form and content depending upon the nature of the engagements and needs of the client.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards
2420 Quality of Communications Communications should be accurate, objective, clear, concise, constructive, complete and timely.

Practice Advisories
1. Accurate communications are free from errors and distortions and faithful to underlying facts. The manner in which the data and evidence is gathered, evaluated and summarized for presentation should be done with care and precision. 1. Objective communications are fair, impartial and unbiased and are a result of a fair-minded and balanced assessment of all relevant facts and circumstances. - Observations, conclusions, and recommendations should be derived and expressed without prejudice, partisanship, personal interests, and the undue influence of others. Clear communications are easily understood and logical. Clarity can be improved by avoiding unnecessary technical language and providing all significant and relevant information.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards
2420 Quality of Communications Communications should be accurate, objective, clear, concise, constructive, complete and timely.

Practice Advisories
1. Concise communications are to the point and avoid unnecessary elaboration, superfluous detail, redundancy and wordiness. 1. Constructive communications are helpful to the engagement client and the organization, and lead to improvements when needed. The contents and tone of the presentation should be useful, positive and well-meaning and contribute to the objectives of the organization. 1. Complete communications are lacking nothing that is essential to the target audience and include all significant and relevant information and observations to support recommendations and conclusions. 1. Timely communications are well - timed, opportune, and expedient for careful consideration by those who may act on the recommendations. The timing of the presentation of engagement result should be set without undue delay and with a degree of urgency and so as to enable prompt, effective action.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards
1 Errors and Omissions If a final communication contains a significant error or omission, the chief audit executive (CAE) should communicate corrected information to all individuals who received the original communication.

Practice Advisories
1. If It is determined that a final

engagement communication contains an error, the CAE should consider the need to issue an amended report which identifies the information being corrected. The amended engagement communications should be distributed to all individuals who received the engagement communications being corrected.

1. An error is defined as an unintentional misstatement or omission of significant information in a final engagement communications.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards Practice Advisories
1. Internal auditors should discuss conclusions and recommendations with appropriate levels of management before issuing final engagement communications.

2440 Disseminating Results

The CAE should disseminate results to the appropriate 1. Discussion of conclusions and recommendations is individuals. usually accomplished during the course of the engagement and/or at post-engagement meetings 2440.A1 (exit interviews). Another technique is the review of draft engagement issues, observations and The CAE is responsible for recommendations by management of the audited communicating the final results activity. to individuals who can ensure that the results are given due 1. Although the level of participants in the discussions consideration. and reviews may vary by organization and by the nature of the report, they will generally include those individuals who are knowledgeable of detailed operations and those who can authorize the implementation of corrective action.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards
2440 Disseminating Results The CAE should disseminate results to the appropriate individuals. 2440.A1 The CAE is responsible for communicating the final results to individuals who can ensure that the results are given due consideration.

Practice Advisories

1. The CAE or designee should review and approve the final engagement communications before issuance and should decide to whom the report will be distributed. CAE should approve and may sign all final reports. If specific circumstances warrant, consideration should be given to having the auditor-in-charge, supervisor, or lead auditor sign the report as a representative of the CAE..

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards
2440 Disseminating Results

Practice Advisories

1. Final engagement communications should be distributed to those members of the organization The CAE should disseminate who are able to ensure that engagement results result to the appropriate are given due consideration. individuals. - The final engagement communications should be 2440.A1 distributed to management of the activity under review. The CAE is responsible for communicating the final - Higher-level members in the organization may results to individuals who can receive only a summary communication. ensure that the results are given due consideration. - May also be distributed to other interested or affected parties such as external auditors and the board.

THE IIA STANDARDS FOR COMMUNICATING RESULTS

Reports are the output of the audit process.

Standard 2500 The CAE should establish and maintain a system to monitor the disposition of results communicated to management.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards Practice Advisories
1. The CAE should establish procedures to include the following: A time frame within which managements response to the engagement observations and recommendations is required.

2500 Monitoring Progress

The CAE should establish and maintain a system to monitor the disposition of results communicated to management. A verification of the response (if appropriate) A follow-up engagement (if appropriate)

A communication procedure that escalates unsatisfactory responses / actions, including the assumption of risk, to the appropriate levels of management.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards Practice Advisories

2500 Monitoring Progress

1. Certain reported observations and recommendations may be so significant as to require immediate action by management. These conditions should be The CAE should establish and monitored by the internal audit activity until corrected maintain a system to monitor because of the effect they may have on the the disposition of results organization. communicated to management. 1. Techniques used to effectively monitor progress include: Addressing engagement observations and recommendations to the appropriate levels of management responsible for taking corrective action. Receiving and evaluating management responses to engagement observations and recommendations during the engagement or within a reasonable time period after the engagement results are communicated. Responses are more useful if they include sufficient information for the CAE to evaluate the adequacy and timeliness of corrective action.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards Practice Advisories
1. Techniques used to effectively monitor progress include: Receiving periodic updates from management in order to evaluate the status of managements efforts to correct previously communicated conditions. Receiving and evaluating information from other organizational units assigned responsibility for procedures of a follow-up or corrective nature. Reporting to senior management or the board on the status of responses to engagement observations and recommendations.

2500 Monitoring Progress The CAE should establish and maintain a system to monitor the disposition of results communicated to management.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards Practice Advisories

1. Internal auditors should determine that corrective action was taken and is achieving the desired results, or that senior management or the board 2500.A1 has assumed the risk of not taking corrective action on reported observations. The CAE should establish a followup process to monitor and ensure that management actions have been effectively implemented or 1. Follow - up by internal auditors is defined as a that senior management has process by which they determine the adequacy, accepted the risk of not taking effectiveness, and timeliness of actions taken by action. management on reported engagement observations and recommendations, including those made by external auditors and others.

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards Practice Advisories

2500.A1

1. Responsibility for follow-up should be defined in the internal audit activitys written charter. The nature, timing and extent of follow - up The CAE should establish a follow should be determined by the CAE. Factors to -up process to monitor and ensure consider: that management actions have been effectively implemented or - the significance of the reported observation or that senior management has recommendation accepted the risk of not taking - the degree of effort and cost needed to correct action. the reported condition the impact that may result should the corrective action fail the complexity of the corrective action the time period involved

Standard 2400 Internal auditors should communicate the results promptly. Detailed Standards
2500.A1 The CAE should establish a follow -up process to monitor and ensure that management actions have been effectively implemented or that senior management has accepted the risk of not taking action.

Practice Advisories
1. There may also be instances where the CAE judges that managements oral or written response shows that action already taken is sufficient when weighed against the relative importance of the engagement observation or recommendation. On such occasions, followup may be performed as part of the next engagement. 1. Internal auditors should ascertain that actions taken on engagement observations and recommendations remedy the underlying conditions. 1. The CAE is responsible for scheduling follow -up activities as part of developing engagement work schedules. Scheduling of follow - up should be based on the risk an exposure involved, as well as the degree of difficulty and the significance of timing in implementing corrective action.

THE IIA STANDARDS FOR COMMUNICATING RESULTS

Reports are the output of the audit process. Standard 2600 When the CAE believes that senior management has accepted a level of residual risk that is unacceptable to the organization, the CAE should discuss the matter with senior management. If the decision regarding residual risk is not resolved, the CAE and senior management should report the matter to the board for resolution.

Questions we need to ask ourselves as Internal Audit Practitioners.

What is the value of the IA Report? How much do you think each audit report is likely to cost your organization? How do you measure what management is getting in return for that price? What steps do you take to make sure each report fits senior managements needs? What quality-control steps do you have in place to guarantee that you are producing the best report possible?

Module II

The Internal Audit Report

your most powerful tool plays a unique & influential role regularly submitted to senior management, BOD & the Audit Committee includes change initiatives, attention to high-risk areas, evaluation/assessment results of the quality of systems & procedures helps management decide on directions, strategies and priorities the main product auditors produce

Report Writing is:

A PROBLEM AN OPPORTUNITY A PROCESS

Report Writing: A problem

Why writing is Difficult to Many? Honestly misguided Ideas thought of not clear enough Trying to impress others Trying to conceal a weak material

Report Writing: An Opportunity

The auditors ability to write will spell the difference in his performance. Audit reports play a unique and influential role in your organization:
Include recommendations for changes in procedures and standards Calls attention to high-risk areas Reports your evaluation of the quality systems and procedures

Based on audit reports, management decides on directions, strategies and priorities,

Report Writing: A Process

Both mental and physical process Starts at the beginning of the audit assignment and ends with the submission of the final audit report Writing the audit report should be done throughout the audit process

Module III

at do you think are the purposes of an Audit Repo

Purposes of the Audit Report INFORM PERSUADE GET RESULTS

Purposes of the Audit Report

INFORM
What the current situation is What should have happened What was / has been done What the future scenario is

PERSUADE
Why something has to be done So what if we do nothing

GET RESULTS
What is to be done Who will do it When to do it or Timetable to have it done How to do it

To whom are audit reports important?

To the Auditors themselves To Operating Management To Top Management To the Organizations Outside or External Auditors Government Regulators or Courts

Why Audit Reports are Important to Auditors?

Summarize the purposes, scope and results of audit work Stimulate action to strengthen controls Facilitate teaching and training of audit staff members Facilitate auditor performance evaluation Facilitate audit follow-up

Why Audit Reports are Important to Operating Management?

Stimulate action toward necessary improvements by serving as a plan of action. Means of gaining support for issues that require attention of higher management. Serve as window s into operations for busy operating managers.

Why Audit Reports are Important to Top Management?

Provide details about operations and controls not contained in other reports Provide objective information on audit activities, permitting management to judge if the more important or higher risk affairs are being audited. Provide information that may not reach top management Promote disciplined operations

Why Audit Reports are Important to External Auditors?

Important source of information for external auditors
Help them evaluate the extent to which internal audit work can be relied on for segments of their examination Can alert auditors to special problems and help them avoid duplication of work

Why Audit Reports are Important to Others?

Help provide assurance to regulatory agencies regarding practices of interest to them.

Module IV

uality Standards of Internal Audit Report

DIRECT

CONSTRUCTIVE

RESULTCONCISE APPROPRIATE ORIENTED PERSUASIVE INVITING TIMELY

uality Standards of Internal Audit Report

Direct straightforward and factual presentation of results
attained thru: Conclusive opening sentences Information headings, and Presentation of main points first.

Concise brief statements, capsulizing key ideas

Limited detail Selection of items of greatest significance Summaries of supporting data

Appropriate
Know the readers interests Select the proper emphasis, and Present relevant and valid information

uality Standards of Internal Audit Report

Persuasive
Convincing support for conclusion Effects of conditions described, and Quantification of impact

Constructive
Causes of problems Balance of positive & negative, and Credit for management or audit customers action

Results-oriented
Measurable specific recommendations Practical, action-oriented solutions Description of management action taken

uality Standards of Internal Audit Report

Inviting
Executive Summaries Professional format, and Brief & Clearly labeled

Timely
Immediate presentation to line management Interim reports for serious issues, and Strict enforcement of standards of timeliness

Module V

ost Components of Internal Audit Report

Develop and meet the quality goals but control the cost of achieving the standards. You create the greatest value, balancing the investment with the payback.

Cost Components of Internal Audit Reports

Analytical Costs Administrative Costs Agreement Costs

ost Components of Internal Audit Report

Analytical Costs
Time required to complete the audit, including planning, fieldwork, and development / presentation of conclusions.

Administrative Costs
Time required to issue reports, including development of reporting standards, definition of formats & the training / instruction provided to staff; complete production, including composing the report, management review and editing, typing, proofreading, and copying.

Agreement Costs
Time to present the report, agree on solutions, and follow-up any unresolved items after the report is issued.

THE BASIC EQUATION OF VALUE VALUE = QUALITY - COST GOAL: Keep quality ratings high, Control costs, especially Admin. Cost.

Balancing.. the Cost & Quality of Reporting

Cost Components
Analytical
Planning Fieldwork

Directness Succinctness Appropriateness Persuasiveness Printing / Proofreading

Orientation towards Results Inviting Look & Sound Timeliness

Administrative
Composing / Encoding Reviewing / Editing Printing / Proofreading

Agreement
Presentation / Exit Conference Solutions / Audit Customers Feedback & Commitment Follow-up / Updates

Timeliness & Quality of the Audit Report is the DIRECT RESULT of the PROCESS used for Writing.

Module VI

Getting started: Writing the First Draft Auditing Time v.s. Report Writing Time Tendency for more time auditing to arrive at results Tendency for less time report writing & editing to get those results published

GOAL:

Strike a balance!

Getting started: Writing the First Draft Scheduling Writing Time Staff members argue that there is not enough time for report writing Managers argue that too much time is spent writing and reviewing reports.

GOAL:

Strike a balance!

In Getting Started or Writing the First Draft What do you think are the Causes of Writers Block other than Time Element?

Getting started: Writing the First Draft 2 Causes of Writers Block (other than Time Element) Procrastination
Self-imposed delay Not knowing where to start Having other things to do Not able to schedule time with the boss

Perfectionism
Prevents writers from getting started Afraid of making mistakes Insists on writing the report from start to finish without revision

Outcome:
Quality of reports below par Too much managers time reviewing and correcting report draft.

WE CANNOT AFFORD THESE!

How to break this Syndrome?

Change in Thinking Change in Process of Writing

Module VII

Techniques which can help overcome delays & barriers in producing quality & timely reports. Write along the way Use standard components & frameworks to structure your thoughts Check for the agreement on substance & strategy Compose the full report quickly and polish the final report

Writing Along the Way

A typical work paper summary outlining objectives, summary of testing, and conclusion is designed for ease of reviewing test results.

Paradigm Shift:
Build a different kind of summary serving a dual purpose documenting results and providing material for the report.

Writing Along the Way 1st Step in Writing is one of generating ideas Dumping Ideas Worksheet:

Writing Along the Way 1st Step in Writing is one of generating ideas Planning Worksheet

Sample of Completed Planning Worksheet:

Topic or Section: Non-Moving Trade Receivable Accounts Conclusion or Key Message: No adequate supports are found in the A/R jackets. Key Points Supporting the Conclusion: -30 of 40 files tested (75%) have no evidence of customers acknowledgment (invoices or equivalent not signed). -10 of 40 files testes (25%) have no documentation on file. -value of missing invoices was PhP800K

Planning Worksheet

Sample of Completed Planning Worksheet:

Action to be Taken: Implement the SOP of securing customers acknowledgment on the face of the invoice for services rendered. Preferred Impression to Convey to Reader: If a case is pursued considering these are non-moving accounts, the company does not stand a chance in court and will not be able to collect. The amount of these outstanding trade receivables is at risk.

Module VIII

Standard Components of Most Audit Reports (5 Elements or Attributes of Audit Comments / Findings) Condition Criteria Cause Effect Recommendation

Standard Components of Most Audit Reports (5 Elements or Attributes of Audit Comments / Findings) Condition (What is..?) Criteria (What should be?) Cause (Why the condition exist?) Effect (So what..?) Recommendation (How to make it better?)

Standard Components of Most Audit Reports (5 Elements or Attributes of Audit Comments / Findings) Condition
Factual statement of the problem found What actually exists? It tells what is happening now or in the past.

Criteria
a Standard
(established by management, industry practice, common sense, accounting principles, etc.) formalized in policy and procedure manuals, employees handbooks, authoritative literature or guidelines More often not so clear cut or well defined or documented

What should exist

Standard Components of Most Audit Reports (5 Elements or Attributes of Audit Comments / Findings) Cause
Most important of the 5 attributes Most often overlooked Why does the condition exist? Why did it happen?

It is only when we identify the root cause of the conditions that our work will have a lasting value.

Effect
So what if we do nothing Whats the result if we dont follow the procedures? Whats the implication or impact?

Standard Components of Most Audit Reports (5 Elements or Attributes of Audit Comments / Findings) Recommendation States what can be done to improve the situation What should be done to correct the cause (not correct the condition) Must eliminate or address the cause Must be practical, logical and cost effective Should be developed in cooperation with management

Use Standard Components to Structure your Thoughts

Reports normally is standard. Format or structure (e.g. Peters Matrix format, standard report format for banks).

Use known elements & organizational patterns upon documentation of ideas during fieldwork.

Peters Matrix Format

CONFIDENTIAL Auditee : Report No. Report Date : : Audit Date: Audited by:

Discussion Date: Discussed with :

What is. (The present situation)

What should be. (Recommendation / Ideal Situation)

So What (If we do nothing)

Action Taken (Audit Customers Feedback / Commitment)

Standard Report Format for Banks

Executive Summary Headings
Addressee Subject Date

Business Scope Conclusion Recommendations

Check of Agreement on Substance & Strategy

Evaluate the substance to ensure agreement on key points before presentation to line management Evaluate the strength of data supporting the statement of condition Determine if that statement reflects the appropriate emphasis Improve brainstorming on more persuasive items such as Effect & Recommendation Field auditor & supervisor agree on these outlines

Compose the Full Report Quickly & Polish the Final Report
Takes a half day to a maximum of 1 day only A phase which should be completed quickly Final Steps of Composition:
Organizing the comments Consolidating related items Writing a Summary & Conclusion Editing for Style & Clarity Formatting for a Professional Presentation

Module IX

Data Gathering & Organization

An essential step in the proper conduct of audit Quality of data determines the quality of audit report Well-planned data gathering process and a systematic application of data gathering techniques would result to the development of sound audit conclusions and recommendations.

Pointers in Data Gathering

Plan data gathering systematically Fit data gathering schedule with operations people Talk to people in operations Avoid projecting an expert image Ensure that data gathered are complete & accurate (& authentic) Record both facts and interpretation of facts Use charts, diagrams, flowcharts and other devices to summarize data

Module X

Preparing the Audit Report

Determine the purpose of the audit report Identify the main recipient or reader of the audit report Prepare a report outline Use talking captions instead of topic captions

Preparing the Report Outline

Report title or subject matter
Must make the reader want to read the report Must show the importance and benefit of reading it

Topics discussed by captions Topic Caption

A word / phrase that identifies the topic / area of discussion

Talking Caption
Identifies the subject matter and indicates what is to be said about the subject. More effective and useful in writing the narrative of the report.

Arrange topics in order of importance

Topic Caption
Cash Accounts Receivable Fixed Assets Travel Advances

Talking Caption
Cash shortages Delinquent Accounts Receivable Unproductive Fixed Assets Long Outstanding Travel advances

Writing the First Draft

How and when you compose the draft, organize research data, and begin the review of the draft report by line and audit management influence your ability to write the highest quality report in the shortest amount of time.

Auditors Logic
What is the control? How should it be tested? How well is the control working? What exceptions or control weaknesses exist? What should be done?

Readers Logic
What are the results? What are the problem? How big is the problem? Why does it happen? How did this happen? What has been done or will be done to correct this?

Incorporate Report Writing Into the Audit Process

Phase One: Planning & Fieldwork
Write the objective and scope Use Dumping and Planning Worksheets to gather information Complete Audit Comment Worksheet Review substance of audit comments using the Worksheets Present the outline of audit comments to line management Decide on overall organization of report

Phase Two: Report Production

Write report draft, including summary and conclusion Edit for style, conciseness and clarity Present final report to management

Auditing Information Needs of Management

Accuracy & reliability of accounting and operation data (assurance/finl audit) Resources of the organization are adequately safeguarded against waste, fraud & inefficiency (operations audit) Operating Departments compliance with prescribed policies and procedures (compliance audit) Operational efficiency (OA) Risk areas and problems in operation & solutions to address these risks (Risk-Based Auditing) Opportunities for improving operations & courses of action to take advantage of opportunities

Module XI

Qualities of Useful Audit Information:

Accuracy Clarity Conciseness or Brevity Comparability Timeliness Relevance Good Organization

ACCURACY
Information is accurate if.
Factual, not exaggerated Can be proven with evidence Can be demonstrated logically

May be absolute or relative Can be developed thru effective systems & procedures, sound judgment, & scientific data-gathering

Degrees of Accuracy Absolute Accuracy

Example: The cash shortage of Employee Y is PhP5,125.75. This is 10% of total cash handled. (Accountability purposes)

Relative Accuracy
Example: The average monthly sales of Product A in 1999 is about PhP10 Million. It is expected to increase by 25 % in 2000. (Planning / Budget purposes)

Examples of Absolute Accuracy

Status of Units Portfolio 11 accounts were fully paid and not renewed 2 accounts turned past due totaling PhP20.445M were endorsed to legal. Missing Documents SSC of 9 accounts and 4 dormant accounts with a total balance of $41K and $5K respectively were missing.

CLARITY
Information is clear if. Message is received as intended Ideas interpreted as intended Clarity could be attained through Right choice of words Effective Sentence & Paragraph construction Well-organized ideas and information Use of appropriate format

CONCISENESS / BREVITY
Information is concise if. Not too much nor too little Enough is enough Direct to the point Lengthy explanations presented in annexes and schedules

Clarity could be attained through KISS formula

Easy to read and write One major idea in a sentence Meat Cleaver technique

Subject: Process of Audit of Loan Portfolio Sample Recommendation:

Ensure that documents needed prior to renewal of credit lines were submitted earlier by clients in order to process renewal 60 days prior to line expiry to make sure that approval could be obtained 30 days prior to line expiry to avoid delays in documentation. Delay in renewals may disrupt line continuity particularly those credit lines secured by REM. Line continuity should be strictly observed since existing REM is extinguished if line is renewed. A new mortgage should be executed if line will be reinstated. Question: Needs improvement or not? Clear? Concise?

Subject: Process of Audit of Loan Portfolio Sample Recommendation:

Ensure that documents needed prior to renewal of credit lines were submitted earlier by clients in order to process renewal 60 days prior to line expiry to make sure that approval could be obtained 30 days prior to line expiry to avoid delays in documentation. Glaring lapses:
Use of redundant words or phrases in one sentence Running sentence Jargon of words Use of unnecessary phrase Not concise nor direct to the point

Effect
Message not clear enough

Subject: Process of Audit of Loan Portfolio Sample Recommendation:

Ensure that documents needed prior to renewal of credit lines were submitted earlier by clients in order to process renewal 60 days prior to line expiry to make sure that approval could be obtained 30 days prior to line expiry to avoid delays in documentation. Suggested: Ensure clients submission of documents needed for credit lines renewal not later than 60 days prior to line expiry. This is to obtain approval at least 30 days before it expires.

Subject: Process of Audit of Loan Portfolio Sample Recommendation:

Ensure clients submission of documents needed for credit lines renewal not later than 60 days prior to line expiry. This is to obtain approval at least 30 days before it expires. Line continuity should be strictly observed since existing REM is extinguished if line is not renewed. A new mortgage should be executed if line will be reinstated.

Noted grammatical error:

Tense not consistent nor parallel.

Subject: Process of Audit of Loan Portfolio Sample Recommendation:

Ensure clients submission of documents needed for credit lines renewal not later than 60 days prior to line expiry. This is to obtain approval at least 30 days before it expires. Line continuity should be strictly observed since existing REM is extinguished if line is not renewed. A new mortgage should be executed if line would be reinstated.

COMPARABILITY
Information compared with related information is given meaning and significance.

Types of Comparison
Comparison with past (growth trend, progress) Comparison with plan (performance evaluation) Comparison with potential (extent of improvement still possible) Comparison with competition (comparative performance with others)

TIMELINESS
Information is timely if. Given to user when needed; otherwise, its value is diminished.

Delayed report means delayed action.

RELEVANCE
Entire Report
Information / conclusions / recommendations useful to users

Parts of Report
Ideas or facts presented support entire report

Test of Relevance:
What happens if the information is not presented in the report?

ORGANIZATION
Is there an overview / conclusion? Put everything reader must know into the early paragraphs Use the 5Ws of journalism:
Who What When Where Why

Organize the rest of the information either in

Order of importance Logical order Chronological order

INTERNAL AUDIT REPORT REVIEW CHECKLIST Report title: Field Auditor: Reviwere CRITERIA
INADEQUATE (65% & BELOW) MARGINAL (66% - 74%

Type of Audit: Date submitted for Review: Date of review: RATING

SATISFACTORY (75% - 85%) VERY GOOD (86% - 95%) EXCELLENT (96% - 100%)

COMMENTS

ACCURATE - Engagement report is free from errors and distortions and are faithful to underlying facts

OBJECTIVE It is impartial, fair and unbiased and is the result of a fair-minded and balanced assessment of all relevant facts and circumstances.

CLEAR Engagement report is easily understood and logical. The report avoid unnecessary use of technical language and provides significant and relevant information.

CONCISE - are to the point and avoid unnecessary use of technical language and provides significant and relevant information.

CONSTRUCTIVE - The tone and content of the report are useful, positive, and well-meaning and contribute to the objectives of the organization.

COMPLETE Includes complete communications to ensure that nothing essential to the target audience is missed out. It should include all significant and relevant information and observations to support recommendations and conclusions. CRITERIA WEIGHT Total items for No. of items of consideration not TIMELY well-timed, opportune, and expedient for careful consideration by those who may act consideration found in the report on the recommendations. The timing of the presentation of engagement results are set without A B undue delay and with a degree of urgency and so as to enable prompt, effective action. ACCURATE (20%) 20 RATING (A-B/A) C RATING (C* CRITERION WEIGHT)

OBJECTIVE (15%)

CLEAR (10%)

24

CONCISE (10%)

Detailed Course Outline (Day 2)

Module XII Module XIII Module XIV Module XV Module XVI Writing to Inform Writing to Persuade How to Organize and Present Audit Findings, Conclusions and Recommendations Organizing & Formatting Audit Reports Presenting Results to Management & the Audit Committee Using Effective Style Writing Concisely How to Review and Edit Audit Reports

Module XVII Module XVIII Module XIX -