Internal Audit Process - Planning

Phase 1 - Planning

The planning stage answers these four basic questions:

  1. What will be looked at during the audit (the scope)?
  2. What questions will be answered (the objectives)?
  3. How will the objectives be answered (the criteria)?
  4. How the examination will be conducted (the approach)?

The Scope

The scope of an audit is the activities, systems, business processes, financial affairs, documents, people and locations that will be looked at during the course of the internal audit. For example, the scope may be defined as ‘government offices providing direct services to Albertans’.

The Objectives

The objectives identify what is to be accomplished by looking at the scope items. Using the example above, an internal audit may look at the government office providing direct services to Albertans (the scope) to determine whether the office is accessible to the Albertans that it serves (the objective).

It is the job of the internal auditor to conclude on the objectives.

The Criteria

Criteria are the measures that an internal auditor will consider in concluding on performance relative to an audit objective. For example, concluding on the objective noted in the previous example, criteria may include:

  • The office is located within 20 minutes travel time for 80% of the clients who use the office;
  • The majority of clients served by the office feel it is conveniently located;
  • Office hours of operation are appropriate to meet the needs of its clients; or
  • The office is accessible to physically disabled people.

By responding to all the criteria underlying an objective, an internal auditor is able to reach an objective, factual and fair conclusion to the question posed by the audit objective.

As part of the planning process, Corporate Internal Audit Services develops a terms of reference, which is an agreement setting out the overall purpose, scope and objectives for the audit to be undertaken. The terms of reference is signed by Corporate Internal Audit Services and the appropriate person within the organization being audited.

To ensure the success of the internal audit, it is important that management at the organization being audited participates in the planning process. In particular it is key that the organization provide input into the development of the audit terms of reference.

The Approach

The audit approach includes determining how the examination will be conducted. This includes identifying the type and nature of evidence to be collected. It also entails determining the techniques used and resources required to collect evidence. Timelines for the examination must also be developed in the planning phase, in consultation with the audit client.