Internal audit, value-for-money and other assurance engagements
Internal audit
Internal audit provides independent, objective assurance and consulting services designed to add value and improve operations. It evaluates risk management, control, and governance. Internal auditors are employees or outsourced, and report to those charged with governance. External auditors may use internal audit work but must assess objectivity and competence.
Value-for-money (VFM)
VFM audits assess economy, efficiency, and effectiveness. Often in public sector. Economy = acquiring resources at lowest cost; efficiency = maximising output from resources; effectiveness = achieving objectives.
Other assurance engagements
Include reviews, agreed-upon procedures, and compilation engagements. Reviews provide limited assurance. Agreed-upon procedures report factual findings, no assurance. Compilation provides no assurance.
Traps in questions
- Confusing internal audit with external audit (internal focuses on improvement, external on opinion).
- Mixing up economy, efficiency, effectiveness.
- Assuming internal audit is always independent (they report internally).
- Overlooking that agreed-upon procedures provide no assurance.
- Forgetting that external auditors can rely on internal audit but must evaluate.
Worked example / rule of thumb
If a question asks about VFM, remember: Economy = cost of inputs; Efficiency = input/output ratio; Effectiveness = achieving goals. Rule: Internal audit can be used by external auditors if objective and competent; but external auditor retains responsibility.
Key points
- Internal audit adds value and improves operations.
- VFM = economy, efficiency, effectiveness.
- Internal auditors report to those charged with governance.
- External auditors may use internal audit work but must assess.
- Agreed-upon procedures provide no assurance.