Auditor's request for workflow or narative 63



  • We have started working with our auditors on the required documentation of the Internal Controls. One of their requests is for us to provide a workflow diagram and/or narative of each department to explain how operational activities are performed and who performs them. To us this seems like we are doing their job since they should have a good understanding of the industry. Is anyone else being required to do this?
    FYI… this request that they are making is above and beyond the documentation of control within each department.



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  • To us this seems like we are doing their job since they should have a good understanding of the industry. Is anyone else being required to do this?
    Trinity; The choice is yours… If you have a good external auditor they should know your bizz, but then again you allways know your own bizz better yourself.
    You are not required to do this, but then they have to do it and that will cost a little bit more 😢
    They probably also ask this to you to get you involved with the process.



  • Even though there is no specific requirement on how to document your processes their key controls it seems that it makes sense to do it right in the first place.
    So - a proper process documentation constits out of a process narrative, process flow diagram and a description of each key control. The links between the diagram, key control and the underlying accounts should also be made.
    Your auditors can’t provide you with that, because they have to give a statement about the documentation, the effectiveness of the controls etc. within the year-end audit and to the sec. By providing or significantly helping you with the documention they would violence their independence.
    That defintely wouldn’t help both of you.



  • Hello Trinity,
    Welcome aboard to this forum.
    Based on your email it seems you are referring to ‘External Auditors’. With the new law segregation of duties, external auditors will make attestations on the Internal Controls, rather than assisting you with documentation.
    For your company to get a clean and healthy attestation, you need to impress upon your External Auditors with proof of documentation on your processes/key controls/Risks and Control effectiveness. This documentation could be 2 fold- Narratives- Description of the Process and Controls, Flow Diagrams - Visio etc.
    Typically in large companies, Internal Audit Dept will assist the Business/process owners to accomplish the above described. In case if you do not have internal Audit dept, not staffed enough etc, then another option is bring in out side consultants to assist you. These consultants would need to have Internal Audit Exp, Control documentation and Sarbanes experience.
    I am an Internal Audit Consultant working on Sarbanes project. If you can send me a personal note with project details, I can assist you with some templates for narratives/flows
    Good Luck
    Madhav Vedula
    mvedula_at_consultant.com



  • Dear Mr.Vadula,
    I am CIMA student, I kindly request you to brief me on teh following points,
    a) SOX and its compliance from Audit point of view.
    b) I presume that SOX is more of Internal audit, in that case can this be off shored.
    c) Is SOX going to be replaced by IASB, from 01.01.2005.
    d) If not all of SOX going to be changed, then what are the finer points that are going to be changed.
    I sincerely request u to help me in this matter.
    cheers
    sathya



  • Dear Mr.Vadula,
    I am CIMA student, I kindly request you to brief me on teh following points,
    a) SOX and its compliance from Audit point of view.
    b) I presume that SOX is more of Internal audit, in that case can this be off shored.
    c) Is SOX going to be replaced by IASB, from 01.01.2005.
    d) If not all of SOX going to be changed, then what are the finer points that are going to be changed.
    I sincerely request u to help me in this matter.
    cheers
    sathya


    Sathya:

    1. For more information SOX - visit the PCAOB website www.pcaob.org
    2. You can also refer to www.aicpa.org
    3. Sarbanes Design intent is to boost Investor Confidence and bring transperency to Financial and Internal Control environment in public compnaies. So majority of complaince work is vested with INTERNAL AUDITORS. However the attestation is vested with Extenal Auditors
    4. Sarbanes is not going to go away by any other leglistations in near duture
    5. Any changes to Legislations are need to introduced in the US Congress and given that Sarbanes Implementation is not yet up and running - It is unlikely that there will be major changes.
    6. SEC is the Enforcement agency for Sarbanes where as the overseight of implementation is vested with PCAOB. From time to time PCAOB may issue guidelines …which in turn could change some of the procedures that companies follow. For Eg: In May -2004, it released the 2nd guideline- where in it felt that IT -Business Coninuity can be excluded for Sarbanes - Compliance
      Hope the above answers your questions
      Madhav Vedula CISA
      Sr.Internal Auditor
      mvedula_at_go.com


  • Trinity,
    One of the things that management needs to demonstrate is that they have documented their understanding of every key process that leads to the external financial statements. As others have noted above, this is generally accomplished through narratives and flowcharts. It would be difficult to prove understanding of the processes without this information. You also have to document key controls and show where those are in the financial processes.
    Your external auditor will end up issuing their assessment of your understanding of controls as well as thier assessment of the effectiveness of those controls.
    Good luck as you work through this. Keep asking questions as there are quite a few knowledgeable people on this board.


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