Wiley CIAexcel Exam Review 2014: Part 3, Internal Audit Knowledge Elements

(N) Problem Solving and the Internal Auditor: Applications

Auditors solve problems when they engage in an audit. An example of a problem-solving skill required of internal auditors is that of determining which audit procedures are most appropriate for a given situation. Because internal auditing involves examining evidence and reaching conclusions based on that evidence, auditors must understand and be adept in the use of inductive reasoning. In addition, internal auditors must be able to evaluate a specific situation and deduce, for example, what evidence should be gathered to reach a valid conclusion. Several audit situations are presented to apply problem-solving skills.

• Audit Situation No. 1. An internal auditor wishes to determine whether the accounts payable ledgers accurately reflect the obligations of the firm to vendors. Goods are shipped FOB (freight on board) to the buyer’s plant. The auditor needs to select the type of documents that provide the best evidence and are useful. Given documents such as vendors’ packing slips, purchase orders, receiving reports, vendors’ invoices, and purchase requisitions, the auditor would select purchase orders, receiving reports, and vendors’ invoices.
• Audit Situation No. 2. During a preliminary survey of the accounts receivable function, an internal auditor discovered a potentially major control deficiency while preparing a flowchart. Since this is a major control problem, the auditor should take an immediate action by reporting it ...