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CS Professional · Internal and Forensic Audit · Practices related to Internal Auditing

Sundaram Textiles Ltd has an internal audit department that reports functionally to the Audit Committee. While preparing the annual internal audit plan, the Chief Audit Executive first lists all auditable units such as procurement, payroll, treasury and dispatch. Which step should logically come next so that audit effort is directed to the areas that matter most?

After listing the audit universe, the internal auditor should assess and rank each auditable unit by inherent and control risk. This allows limited audit resources to be allocated to high-risk areas first. Fieldwork, reporting and management responses follow later, not before risk ranking.

  1. AAssess and rank each auditable unit by inherent and control riskCorrect
  2. BIssue the final audit report for each unit
  3. CStart substantive testing of every unit equally
  4. DPrepare the management response to findings

Explanation

A risk-based plan starts with an audit universe, then ranks each unit by risk (inherent and control risk) to decide priority and frequency. Testing all units equally ignores risk. Reports and management responses come only after fieldwork.

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