Evolution Of Auditing

National Audit Authority

The Evolution of Auditing

Prepared and Presented by: Danilo V. Cabug, Consultant

Rationale and Objectives Why is there a shift to Risk-Based Audit Approach? The RBA will: - align the audit process more closely with the government’s needs to improve the governance structure of the auditee particularly in the area of financial reporting; - provide users of the financial statements a higher level of assurance that the auditee’s processes are designed and operating effectively; - enable the performance of a comprehensive audit of accounts and use of funds and property; Prepared and Presented by: Danilo V. Cabug, Consultant

Rationale and Objectives Why is there a shift to Risk-Based Audit Approach? – enable auditors to check compliance of auditees on laws, circulars and regulations, and will determine whether related compliance risk is properly addressed; – strengthen accountability in the auditees; – recommend numerous value-added deliverables and measures to improve the efficiency and effectiveness of government operations noted in the course of the financial audit. Prepared and Presented by: Danilo V. Cabug, Consultant

Evolution of Auditing • External Influences Greater environment risks

Corporate Governance Provisions/Requirements

Technological Advances

Audit

Stricter regulatory environment

Rapid changes in economy

Greater assurance for investors and the Capital markets

Prepared and Presented by: Danilo V. Cabug, Consultant

Evolution of Auditing • Internal Influences • Rising constituent issues and need for assistance

Audit

•Increasing management and stakeholders expectations for: •better value •greater risk coverage •alignment with auditees’ objectives, and •strengthening accountability • Need for greater assurance on controls and improvements

Prepared and Presented by: Danilo V. Cabug, Consultant

Evolution of Auditing Increasing expectations of the audit function Effective Change Agent

External Drivers

Auditee Risk/Process/ Financial Focus

Internal Drivers

Increased Flexibility

Requires Audit to Provide World Class Services

Deeper Skill Sets

Expertise In Technology

Prepared and Presented by: Danilo V. Cabug, Consultant

Add More Value

Evolution of Auditing 1st Generation

2nd Generation

3rd Generation

4th Generation

(Pre-1980) Controls

(1980s)

(1990s) Risks

(2000 - ?)

Start with existing processes, procedures and control activities. Audit for compliance

Control Frameworks Start with financial/ compliance risks. Determine controls that should be in place. Audit for design, operational effectiveness and compliance.

Start with a thorough understanding of the organization and the various agency risks. Determine controls that should be in place. Audit for design, operational effectiveness and compliance.

Prepared and Presented by: Danilo V. Cabug, Consultant

Enterprise-wide Risk Management

Start with an understanding of the organization and the various auditee risks. Determine the Risk Management Process (RMP) that should be in place to effectively manage the key risks. Audit for design, operational effectiveness and compliance within each of the RMP components.

Evolution of Auditing Comparison of Key Concepts Previous Auditor Roles

New Auditor Roles

• appraisal function • examines and evaluates its activities as a service to the organization • assists members of the organization in the effective discharge of their responsibilities • provides analysis, appraisals, recommendations, counsel and information concerning the activities reviewed

• assurance and advisory activity • to add value and improve an organization’s operation • helps an organization accomplish its objectives • brings a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes

• promotes effective control at reasonable cost

Prepared and Presented by: Danilo V. Cabug, Consultant

Evolution of Auditing

CHALLENGES

Challenges to meeting higher audit expectations Difficulty Positioning Audit in More Progressive Role

Need for a More Structured and Systematic Methodology

Challenges Overcoming Management’s Traditional View of Audit

Broad Scope, Limited Resources

Challenges Obtaining Management “Buy-In” Audit Plan Completion

Compliance with Standards and Governance Need for Soft & Consulting Skills Need for Tools and Frameworks

Clear understanding of Role in Risk Management

HIGHER EXPECTATIONS FROM AUDIT

Prepared and Presented by: Danilo V. Cabug, Consultant

Evolution of Auditing Audit Competencies to Meet Today’s Challenges Technical Skills •Knowledge of Risk-based audit approach and methodology •Skills on computer-based audit procedures and techniques •Familiarity with tools and frameworks (ex. COSO, process mapping, control self-assessment, risk assessment) •Analytical and critical thinking

Soft Skills •Interviewing •Facilitation and presentation skills •Written communication and effective reporting •Interpersonal skills • Project management

Prepared and Presented by: Danilo V. Cabug, Consultant

Prepared and Presented by: Danilo V. Cabug, Consultant