assignment audit your understanding 6 1 (practice)

Determining Audit Fees by Ahsan Rashid & Co. (Audit Firm)

This internship report is based on practical experience at the Ahsan Rashid & Co., CA Firm. This report contains several parts. In the first part of this report contains some description about the Auditing and perspective of the ICAB. The next part is about the Determination of Audit fees and Current situation of the Company.

Origin of the Report

Internship is the part of BBA course and it is an opportunity to any fresh graduate gain practical experience in corporate world. I had opportunity to work with Auditors of CA Firm. With this company I tried to implement educational experience in this company. Auditing section of CA firm support me to do audit in different type of organization and share with me their experiences.

This research report is the reflection of my working experience at this company and summary of my responsibilities that had been bestowed on me. The report topic is “Critical analysis on determining Audit fees by an Audit firm”

I audited different types of company through this CA firm. I had scope to learn about the group’s activities while I came into contact with different departments. I had opportunity to inform about the Audited Company’s performance and financial condition.

My intern topic was “Critical analysis on determining Audit fees by an Audit firm”. CA firm evaluate and verify all the financial and non-financial activity of its client company and give them valuation report after the end of evaluation for the fairness of the company which is most important document for a company. I was worked with this Audit group and perform my job according to the rule.

Methodology

I prepared this report in two segments. In my first part I explained about the “Auditors and Audit” and in second part I focused on the “Determination of Audit fees”. I had to collect data for analyzing Audit fees. I had to rely on Audit Report of the client companies for regression analysis. Secondly, I talked with officials to know about the Audit fees system.

Audits are performed to ascertain the validity and reliability of information; also to provide an assessment of a system’s internal control. The goal of an audit is to express an opinion on the person / organization / system (etc.) in question, under evaluation based on work done on a test basis.

Due to practical constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits.

In the case of financial audits, a set of financial statements are said to be true and fair when they are free of material misstatements – a concept influenced by both quantitative (numerical) and qualitative factors.

Auditing is a vital part of accounting. Traditionally, audits were mainly associated with gaining information about financial systems and the financial records of a company or a business (see financial audit). However, recent auditing has begun to include non-financial subject areas, such as safety, security, information systems performance, and environmental concerns. With nonprofit organizations and government agencies, there has been an increasing need for performance audits, examining their success in satisfying mission objectives. As a result, there are now audit professionals who specialize in security audits, information systems audits, and environmental audits.

In financial accounting, an audit is an independent assessment of the fairness by which a company’s financial statements are presented by its management. It is performed by competent, independent and objective person(s) known as auditors or accountants, who then issue an auditor’s report based on the results of the audit.

In cost accounting, it is a process for verifying the cost of manufacturing or producing of any article, on the basis of accounts measuring the use of material, labor or other items of cost. In simple words the term, cost audit, means a systematic and accurate verification of the cost accounts and records, and checking for adherence to the cost accounting objectives. According to the Institute of Cost and Management

Accountants of Pakistan, a cost audit is “an examination of cost accounting records and verification of facts to ascertain that the cost of the product has been arrived at, in accordance with principles of cost accounting.”

Types of auditors

Auditors of financial statements can be classified into two categories:

External auditor / Statutory auditor: External auditor / Statutory auditor is an independent Public accounting firm engaged by the client subject to the audit, to express an opinion on whether the company’s financial statements are free of material misstatements, whether due to fraud or error. For publicly-traded companies, external auditors may also be required to express an opinion over the effectiveness of internal controls over financial reporting.

External auditors may also be engaged to perform other agreed-upon procedures, related or unrelated to financial statements. Most importantly, external auditors, though engaged and paid by the company being audited, are regarded as independent auditors.

The most used external audit standards are the US GAAS of the American Institute of Certified Public Accountants; and the ISA International Standards on Auditing developed by the International Auditing and Assurance Standards Board of the International Federation of Accountants.

Internal auditor: Internal auditors are employed by the organization they audit. They perform various audit procedures, primarily related to procedures over the effectiveness of the company’s internal controls over financial reporting. Due to the requirement of Section 404 of the Sarbanes Oxley Act of 2002 for management to also assess the effectiveness of their internal controls over financial reporting (as also required of the external auditor), internal auditors are utilized to make this assessment. Though internal auditors are not considered independent of the company they perform audit procedures for, internal auditors of publicly-traded companies are required to report directly to the board of directors, or a sub-committee of the board of directors, and not to management, so to reduce the risk that internal auditors will be pressured to produce favorable assessments.

The most used Internal Audit standards are those of the Institute of Internal Auditors.

Objectives and advantages of Audit

The objectives of an audit may broadly be classified as

Primary Objectives

Secondary Objectives.

Primary Objectives:

The main purpose of audit is to judge the reliability of the financial statements and the supporting accounting records for a particular financial period. The Companies Act, 1956 requires that the auditor of a company has to state whether in his opinion the accounts disclose a true and fair view of the state of company’s affairs, profit and Loss Account and Balance Sheet of the state of affairs of a business, the auditor carries out a process of examination and verification of books of accounts and relevant documents. Such an examination will enable the auditor to report to his client on the financial condition and working results of the organization. While carrying out the examination of the various books of accounts, relevant documents and evidences, the auditor may came across certain errors and frauds. Despite such a possibility the detecting of errors and frauds is an incidental object. However, laymen have always associated the detection of errors and frauds as the main function of an auditor which is not true. At the same time audit also discloses how far the accounting system adopted in the organization is adequate and appropriate in recording the various transactions as well as the weakness of these systems.

Secondary Objectives:

As stated above, an auditor has to examine the books of accounts and the relevant documents in order to report on the financial condition of the business. In the process of such an investigation of accounts certain errors and frauds may be detected. These are discussed under the following two heads:

• Detection and Prevention of Errors
• Detection and Prevention of Frauds

Detection and prevention of Errors: Various types of errors are mentioned below:

Clerical Errors: Such an error arises on account of wrong posting. For example, an amount received from Thomas is credited to Sunny. Though there is wrong posting still the trial balance will agree. Clerical errors are of three types as follows:

• Errors of Commission: There errors are caused due to wrong posting either wholly or partially of the amount in the books of original entry or ledger accounts or wrong calculations, wrong totaling, wrong balancing, and wrong casting of subsidiary books. For example Rs. 500 is paid to a vendor and the same is recorded in the cash book. While posting to the ledger, the Vendor’s account is debited by Rs. 500. It may be due to carelessness of the clerk. Most of the errors of commission are reflected in the trial balance and these can be discovered by routine checking of the books.
• Errors of Omission: Such errors arise when the transactions are not recorded in the books of original entry or posted to the ledger. For example, sales are note recorded in the sales book or omission to enter invoices in the purchase book. For example Rs. 200 is paid to a vendor. The entry in the cash book is made on the credit side but posting to the vendor side is omitted. Errors due to entire omission will not affect the trial balance whereas errors due to partial omission will affect the trial balance and can be detected.
• Compensating Errors: When two or more errors are committed in such a way that the result of these errors on the debits and credits is nil, they are referred to as a compensating errors. For example, Anil’s account which was to be debited for Rs. 500 was credited for Rs. 500 and similarly, Sunil’s account which was to be credited for Rs. 500 was debited for Rs.500. These two mistakes will nullify the effect of each other. Both the sides of the trial balance are equally affected. As such, these errors are difficult to locate unless detailed investigation is undertaken.

Errors of Principle: Such errors are committed when some fundamental principle of accounting is not properly observed in recording transaction. For example, if there is incorrect allocation of expenditure or receipt between capital and revenue or when closing stock is over-valued. Though trial balance will not disagree, the Profit and Loss Account may be very much affected. Sometimes, such errors are committed deliberately to falsify the accounts or unintentionally due to lack of knowledge or sound principles of accounting. Thus, a thorough examination is to be done to locate such errors.

Detection and Prevention of Frauds: Frauds are always committed deliberately and intentionally to defraud the proprietors of the organization. If the frauds remain undetected, they may affect the opinion of the auditor on the financial condition and the working results of the organization. It is, therefore, necessary that the auditor should exercise utmost care to detect such frauds.

Current status of Audit fees in Bangladesh according to ICAB:

Basis of Charging Minimum Fees for Audit and Other Professional Service Rendered by Chartered Accountants in Practice or Firms of Such Chartered Accountants

The Institute of Chartered Accountants of Bangladesh (ICAB) was established under the Bangladesh Chartered Accountants Order 1973 (President’s Order No. 2 of 1973) for the purpose of regulating the profession of Accountants and for matters connected therewith in the country.

Schedule C (Part-1) of the Bangladesh Chartered Accountants Bye-Laws 1973 framed under the aforementioned Order, stipulates, inter alia , that a Chartered Accountant in practice shall be guilty of professional misconduct if he/she:

• accepts a position as Auditor previously held by another Chartered Accountant without first communicating with him in writing;
• accepts an appointment as Auditor of a Company without first ascertaining from it whether the requirements of Section 210 of the Companies Act 1994 in respect of such appointment have been duly complied with;
• accepts a position as Auditor previously held by some other Chartered Accountant in such conditions as to constitute undercutting;
• solicits clients or professional work either directly or indirectly by circular, advertisement, personal communication or interview or by any other means;

The Council of the Institute resolved that a Chartered Accountant in practice or a firm of such Chartered Accountants may:

• respond to advertisements inviting applications for appointment of Auditors;
• respond to tenders or circulars inviting quotations for professional services restricted to Chartered Accountants either by statute or in terms of such tenders or circulars;
• request for inclusion of the firm-name in the panel for appointment as Auditors; and
• quote fees within the framework of the enclosed Fees Schedule as approval by the Council-ICAB in its meeting held on 18, April 2004.

It shall not, however, be permissible for a Chartered Accountant in practice or a firm of such Chartered Accountants to pay earnest money, security deposit, etc. in reply to such advertisements, tenders, circulars or enquiries.

Part-2: of the Fees Schedule will not be applicable for non-audit work.

PART-3-Fees Schedule

A. Private Limited Companies:

B. Public Limited Companies:

C. Sector Corporation Including Insurance, Autonomous and Semi autonomous Bodies:

D. Banks and Other Financial Institutions Excluding Insurance:

E. Non-Government Organization:

F. Proprietorship Concerns, Partnership Firms, Provident Funds and Charitable Institutions, Voluntary Organizations and Others Not Covered Under Paragraphs:

G. Educational Institutions:

In view of national importance of education and educational institutions being non-trading in nature, audit fees as prescribed by the concerned appointing authorities in consultation with ICAB from time to time shall be acceptable.

H. Co-Operative Societies:

The audit fees chargeable for auditing the accounts of co-operative societies including co-operative banks shall be as per provisions of the Co-operative Societies Act, 1940 and the Co-operative Societies Ordinance, 1984.

Minimum Hourly Rates of Fees Chargeable in Respect of all Professional Work as Referred to Under Paragraphs above:

Subject to the Provisions as Contained in the Following Sub-Clauses:

For the purpose of charging the minimum audit fees as approved under paragraphs A, B and C of Clause 1.00 of part-3 above, 150% of the previous year’s audit fees shall be deemed to be the minimum audit fees of the year if the fees calculated on the basis of the approved rates exceed 150% of the previous year’s audit fees;

For the purpose of calculating the minimum audit fees as approved under paragraphs D and F of clause 1.00 of part-3 above, Gross Assets shall mean and include total fixed assets and current assets excluding fictitious assets, if any, of an organization as appear on the balance sheet under audit;

While charging fees, members in practice may quote fees, broadly based on the afore-mentioned minimum rates of fees;

Notwithstanding anything contained in the normal definition of Gross Turnover, for the purpose of calculating the approved minimum audit fees of any organization, ‘Gross Turnover’ shall mean and include;

• Total amount of sales including all other income and earnings of the year in case of all manufacturing and trading organizations;
• Total gross premium income including all other income and earnings of the year in case of all insurance organizations;
• Total amount of interest, discount, commission, exchange brokerage and all other income and earnings of the year in case of banks and other financial institutions;
• Total amount of commission including all other income and earnings of the year in case of travel agencies, inventors , brokers and other organizations running on commission earning basis;
• Total income in the form of contributions, subscriptions, donations, grants, aids and all other income and earnings of the year in case of provident funds, charitable institutions and voluntary organizations ; and

Total receipt/bills accounted for and all other income and earnings of the year in case of construction companies and other organizations not covered under 1 to 5 above.

Appointment of Auditors for any special audit of branches of banks, insurance corporations/companies or other organizations shall be treated as an appointment relating to a separate audit , and audit fees payable for such special audits shall be treated as part of the approved annual or statutory audit fees payable by the clients concerned;

In case of organizations under installation/awaiting commissioning, acceptance of minimum audit fees at a reduced rate of 50% of the approved minimum audit fees, may be considered until such time as such organizations go into commercial production;

In case of dormant companies (i.e. companies not in commercial operation), acceptance of minimum audit fees shall be subject to mutual consent of the clients and the Auditors;

In the context of the above-stated approved rates of minimum audit fees , ‘under-cutting’ shall not include any reduction of fees which may arise due to natural reduction of Gross Assets, Gross Turnover or Gross Grants, as appropriate, of the year under audit as compared to those of the previous year, of any organization;

• The minimum audit fees calculated at the rates as approved under paragraphs A, B, C, D and E of clause 1.00 of part-3 above, shall mean minimum audit fees payable to each of the Joint Auditors where more than one Auditor is appointed.

Determinants of Audit Fees:

In order to identify the factors affecting auditor choice, a multivariate test of association between auditor choice and auditor and client-specific variables is carried out. Auditor choice is examined against a number of explanatory variables. The explanatory variables used are: client size, degree of sponsor ownership, whether the client firm is categorized as a Z-category company by the DSE and the market value of equity-to-book value of equity ratio of client firms. Detailed description on each of these variables is provided in the next section.

The expected association between auditor choice and selected client characteristics is examined by testing the following hypothesis:

Ho: There is no significant association between a number of corporate attributes and auditor choice in Bangladesh.

The analysis is carried out at two levels. At the first level, all the companies in the sample are considered in order to develop a model representing both financial and non-financial companies. At the second level, only the non-financial companies are considered. The multiple linear regression technique is used to test the above hypothesis. In both cases, the dependent variable was a dichotomous variable representing auditor choice.

Model for Auditor Choice

The dependent and explanatory variables used in the present study are described below:

Dependent variable:

Auditor Reputation:

The choice of auditor (Big 4 affiliated firm versus an unaffiliated local firm) by the sample companies is used as the dependent variable in both the models. Typically a dummy variable is used to capture the auditor size in auditor choice studies. Segregation is usually made between Big 4 (formerly Big 8, Big 6, or Big 5 in earlier studies) and non-Big 4 firms. Generally audit fee studies are interested in auditor size as a potential explanatory variable explaining variations in auditor size.

Simunic (1980) found no evidence of significantly higher audit fees charged by the Big Eight firms in the US except Price Waterhouse, regardless of the audit size. Firth (1985) also reported no significant influence of auditor size in New Zealand. But other studies including Taffler and Ramalinggam (1982), Francis (1984), Palmrose (1986), Francis and Stokes (1986) and Francis and Simon (1987) found the existence of a Big Eight premium. In the present study, it was difficult to partition the audit firms in the absence of internationally recognized Big and non-Big firms category.

However, from the available information, it was possible to identify the international link of the audit firms, mostly with the Big Four. Four local firms affiliated with the international Big 4 and two affiliated with two non-big four firms were classified as large. Both Big 4 and Big 6 affiliations were studied. This produced six audit firms which could be recognized as large firms in the context of Bangladesh. Four of these firms are affiliated with the international big 4 firms while the other two are affiliated with two international non-big firms. The variable is labeled AFS.

Explanatory variables:

• Audit size: There are a number of reasons why a large client would want to employ a more reputed auditor. A large client has a bigger volume of transactions under audit, has more and wider range of stakeholders, is likely to have greater agency tension and have more to lose should anything go wrong. Large companies also typically have more dispersed ownership and diversified operations that may tend to make its auditing more complex and potentially risky. Therefore, client size should have a positive link with demand for auditor reputation. Copley and Douthett (2002) provide argument in line with the above contention. Large firms can also afford to pay higher audit fees and typically they appear to pay higher fees. Audit size is the most commonly used explanatory variable in audit fee studies and is consistently found to be the most significant variable in determining audit fees (Hay et al, 2005). In the present study, both total assets and sales were transformed into natural logs and the log of total assets is used in the model because of its higher correlation with the dependent variable. The variable was labeled LOGASSET.
• Audit profitability: A more profitable company is likely to go for higher quality audit as it may wish to signal the quality of its earnings. Client profitability as measured by net profit to sales ratio or return on shareholders’ equity has been used to explain the link between profitability and auditor choice. Relative measures of profitability are usually preferred to absolute measures because absolute profit may be highly correlated with company size. In the present study, the net profit to sales ratio is considered for use in the auditor choice model but was dropped to avoid possible multi co-linearity with the market category variable.
• Leverage: Agency literature (Jensen and Meckling, 1976) suggests increased agency tension as leverage increases. Debt-holders have incentives to engage in costly monitoring to prevent potential wealth transfers from debt holders to equity holders or to managers. They also have incentives to ensure that the financial information produced by the borrower is of acceptable quality. The borrower also has incentives to employ higher quality auditor (even voluntarily) to signal quality of its earnings and asset values. Leverage has been used in a number of audit fee studies as well, although the findings of these studies are mixed (Hay et al 2006). The debt-equity ratio is used as the measure of leverage. Some other leverage measures were also computed such as debt to total assets, total debt, and capital gearing ratio. The debt-equity ratio was selected for analysis because it showed the highest correlation with the dependent variable. A few problems arise in the computation of the ratio. One such problem stems from the lack of a uniform definition of debt that could consistently apply to both banks and non-bank financial institutions (such as insurance and leasing companies) as well as to non-financial companies. Computing the ratio for non-financial companies was rather straight-forward. However, for banks and other financial institutions that was not the case. While customer deposits are liabilities for banks, it cannot be conveniently called a debt. A second problem is caused by the existence of negative equity companies in the sample. In the present study, the first problem was resolved by defining debt to include borrowing from other banks and from the central bank (if applicable) and other borrowings (if any). Similar procedure was employed for non-bank financial institutions. The second problem was averted by replacing book value of equity by market value of equity for negative equity firms. The variable demonstrates significant positive correlation with the selected size variable – log asset. Therefore, in the final model the variable is dropped.
• Market category: Recently DSE listed companies have been categorized into 3 categories A, B, and Z based o their regularity of holding AGMs and/or payment of dividend. It is expected that companies in the Z category are likely to have financial and/or other difficulties and have no incentives to demand reputation by paying higher audit fees and also risking potential revelation of further weaknesses with the firm. The phenomenon is captured with a dummy variable with the value of 1 if it is in the Z category and 0 otherwise. The variable is labeled MKTCAT1. A negative sign is expected for this variable, as companies in the Z category are likely to engage non-big audit firms.
• Audit risk: Some measure of audit risk was considered in the present study. The measures of audit risk used include: leverage ratio, and existence of accumulated loss. In this study, leverage and the existence of loss in clients’ accounts were used as the measures of audit risk. The RISK variable was given the value of one if the company had an accumulated loss and zero otherwise. However, the variable is found to be highly correlated with market category variable and was dropped to avoid multi co-linearity.
• Multi-nationality: Subsidiaries of multinational companies observe higher accounting standards and disclose more information than their domestic counterparts. This may require higher quality audit work which arguably could only be provided by more reputed auditors. In the current sample, all the MNC subsidiaries are clients of big audit firms and pay higher than average audit fees. A dichotomous variable called MNCSUB was used with the value of one if the company was a subsidiary of a multi-national parent and zero otherwise. The variable shows significant positive correlations with the client size (LOGASSET) and was, therefore dropped from the analysis.
• Management shareholding: External audit is commonly viewed as a corporate governance mechanism to resolve agency conflict between managers and absentee owners (Fan and Wong, 2004). Unless statutorily required, in the absence of separation of management from ownership, an entity has no incentive to have an audit for assurance purpose alone. While it is almost impossible to find a modern corporation without any separation of management from ownership, it is not uncommon to find companies with high proportion of management shareholding. Under an agency framework, the relationship between management (or board) shareholding and demand for high quality audit work may be drawn to be inverse. In companies with high management shareholding, less information asymmetry could be expected and hence the reliance on auditor to resolve agency conflict is consequently less. Therefore, companies with high proportion of management (or board or sponsor) shareholding are expected to opt for high quality audit work and vice-versa. In the present study, management and directors’ shareholdings are used to mean the same as in Bangladesh, except in the financial services sector, most director’s act as inside directors. The variable is labeled MGTSHARE.
• Market-to-Book Ratio: Market value of equity to book value of equity shows a company’s growth opportunities and investment in intangible assets. Companies with high ratio of market-to book ratios are likely to demand higher quality audit as they wish to signal higher quality of accounting numbers. The variable is used as an explanatory variable and is labeled MVEBVE.
• Regression Models: Four auditor choice models are developed, two based on the combined sample and the other two on non-financial sub-sample. The first of the two models based on the combined sample uses Big 4 versus non-Big 4 dichotomy in the dependent variable while the second model uses Big 6 versus non-Big 6 dichotomy. The Big 6 firms comprise the local affiliates of the international Big 4 plus two local firms who are affiliated with two no-Big 4 international firms, namely Moore Stephen (M J Abedin and Co.) and BDO Spicer (Howlader Yunus and Co.).

A comparative analysis to charge Audit fees in different sectors and firm size:

Our motive of this research paper is to determine the Audit fees and nature and how it varies in different sector and in case of DSE listed and non-listed firms. According to the process of determination of Audit fees and for the regression test and interpretation, from my internship experience, I’ve collected some important data which is Audited company’s Total Assets, Net profit After Tax and Audit fees. On the basis of these data Critical Analysis is given below:

The test result using SPSS regression line model:

Interpretation:

R-Square, also known as the Coefficient of determination is a commonly used statistic to evaluate model fit. R-square is 1 minus the ratio of residual variability. When the variability of the residual values around the regression line relative to the overall variability is small, the predictions from the regression equation are good. For example, if there is no relationship between the X and Y variables, then the ratio of the residual variability of the Y variable to the original variance is equal to 1.0. Then R-square would be 0. If X and Y are perfectly related then there is no residual variance and the ratio of variance would be 0.0, making R-square = 1. In most cases, the ratio and R-square will fall somewhere between these extremes, that is, between 0.0 and 1.0. This ratio value is immediately interpretable in the following manner. If we have an R-square of 0.4 then we know that the variability of the Y values around the regression line is 1-0.4 times the original variance; in other words we have explained 40% of the original variability, and are left with 60% residual variability. Ideally, we would like to explain most if not all of the original variability. The R-square value is an indicator of how well the model fits the data (e.g., an R-square close to 1.0 indicates that we have accounted for almost all of the variability with the variables specified in the model).

SS Error and SS Effect. The within-group variability (SS) is usually referred to as Error variance. This term denotes the fact that we cannot readily explain or account for it in the current design. However, the SS Effect we can explain. Namely, it is due to the differences in means between the groups. Put another way, group membership explains this variability because we know that it is due to the differences in means. Significance testing. The basic idea of statistical significance testing is discussed in Elementary Concepts, which also explains why very many statistical tests represent ratios of explained to unexplained variability.

ANOVA is a good example of this. Here, we base this test on a comparison of the variance due to the between-groups variability (called Mean Square Effect, or MS Effect) with the within-group variability (called Mean Square Error, or Ms Error; this term was first used by Edge worth, 1885). Under the null hypothesis (that there are no mean differences between data), we would still expect some minor random fluctuation in the means for the two groups when taking small samples. Therefore, under the null hypothesis, the variance estimated based on within-data variability should be about the same as the variance due to between-data variability. We can compare those two estimates of variance via the F test, which tests whether the ratio of the two variance estimates is significantly greater than 1. If greater 1 then its highly significant, and we would in fact conclude that the means for the two data are significantly different from each other.

Coefficient:

Customarily, the degree to which two or more predictors (independent or X variables) are related to the dependent (Y) variable is expressed in the correlation coefficient R, which is the square root of R-square. In multiple regression, R can assume values between 0 and 1. To interpret the direction of the relationship between variables, look at the signs (plus or minus) of the regression or B coefficients. If a B coefficient is positive, then the relationship of this variable with the dependent variable is positive (e.g., the greater the IQ the better the grade point average); if the B coefficient is negative then the relationship is negative (e.g., the lower the class size the better the average test scores). Of course, if the B coefficient is equal to 0 then there is no relationship between the variables.

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QUESTIONS AND ANSWERS Auditing Help

The use of standardized working papers (for example  checklists,  specimen letters) may improve the efficiency with which such working  papers are prepared and reviewed.  Give five examples each of standardized checklists and specimen  letters.

1. Financial statement disclosure checklist, issued by ICAP setting out disclosure requirements in accordance with International Accounting Standards, Companies Ordinance, 1984 and technical releases issued by ICAP.

2. Internal control questionnaire , a useful checklist to document the client’s system of internal controls 3. Audit completion checklist, provides a comprehensive list of essential audit procedures

4. Quality control checklist, provides a list of audit firm’s policies and procedures designed to ensure that all audits are conducted in accordance with International Standards on Auditing.

5. Client’s acceptance checklist, a form which lists client’s acceptance procedures in particular the investigation procedures from bankers, solicitors and investment bankers.

Specimen letters

1. Accounts receivable confirmation letters, used to confirm outstanding balances from customers.

2. Bank confirmation letters, to directly confirm bank balances, securities, guarantees issued by bank on behalf of client and authorized signatories.

3. Letter of representation, obtained where other sufficient appropriate audit evidence cannot reasonably be expected to exists.

4. Engagement letter, sets out terms of engagement.

5. Communication with the predecessor auditor, asking whether there are any professional reasons why the nomination should not be accepted.

What could be the consequences of maintaining inadequate working  papers?

Possible consequence of maintaining inadequate working paper are:

(a) Supervision of the audit will be difficult

(b) Non compliance of ISA 300 which requires documentation of the overall audit plan.

(c) Non compliance oflSA 400 which requires documentation of:

(i) Understanding of the entity’s accounting and control system. (ii) Assessment of control risk.

(d) it will be difficult to review that:

(i) the work has been performed in accordance with the audit program. (ii) All significant matters have been resolved or are reflected in audit conclusions. (iii) Conclusions are consistent with result of work performed and support the audit opinion. (iv) Performance of test of controls and substantive procedures are not evidenced. (v) Evidence for proposed audit adjustments will be missing. (vi) Record of communication with other auditors. Experts and other third parties will not be evidenced. (vii) Matters discussed with entity and their responses will not be evidenced. (viii) Inappropriate audit opinion may be given. (ix) Difficult to defend in case of litigation (x) Ineffective and inefficient audit.

Your assistant has prepared following work paper to ascertain the  customers have been billed for all dispatches.

Client                   Doc Enterprises                Prepared by by 3/2/07

Year ended              31/12/09                     Reviewed by km 15/2/07

Subject              Sales and receivables

Enumerate some significant deficiencies in the above work paper.

1. The Population selected is incorrect. The auditor should have checked dispatch notes with invoices to see that an invoice exists for all dispatches.

2. Following information should have been mentioned in work papers:

– Total population (value and number) – Basis of selection (value and number) – Reference of invoice numbers and dispatch notes tested – Reference of page number.

The auditor should update permanent file for changes in accounting  system of the client. State procedures you would apply to update the  system.

(a) Make a study of last year’s internal control questionnaire

(b) Obtain procedures manual from the client for the current year

(c) Inquire from client of changes made in the current year

(d) Record appropriate changes in the last year’s questionnaire

(e) Perform walk through test to confirm understanding of the updated system.

Discuss objectives and importance of documentation

Refer to paragraph 2 of the text

List some of the contents of current and permanent working paper files.

Refer to paragraph 6.1 and 6.2 of the text

Why the documentation should be prepared on a timely basis?

If documentation is not prepared on a timely basis, the effective review will be difficult. Also, documentation prepared too late, is likely to be less accurate.

What matters determine the form and contents of documentation.

Matters to be considered in. determining form, contents and extent of audit documentation include;

– Nature and size of business – Nature of audit procedures – Risk of material misstatement – Misstatements and non compliance of controls – Audit methodology used – Extent of professional judgment exercised – Factors which influence the judgment – Basis for evaluation of validity of audit evidence in circumstances when further investigation is carried out.

Give some examples of identifying characteristics to be recorded.

Some of the examples of identifying characteristics are:

(a) Date and number of sales invoices tested (b) Confirmation to debtors whose balances exceed Rs. 100,000 (c) Basis for selection in systematic sampling (d) To whom the queries were raised and on what dates (e) Identifying numbers of inventories counted on test basis.

Discuss some significant matters regarding assembly of the audit file.

Significant matters regarding assembly of audit file include:

1. The assembly of the final audit file should be completed within 60 days of the date of auditor’s report. 2. Completeness of the file after the date of audit report is an administrative process only and does not involve additional audit procedures. 3. Allowed changes after the date of audit report include:

– Cross referencing – Deleting superseded working papers – Signing off checklist relating to completion of assembly process – Documentation for comments arising for subsequent review of working ‘papers. by external parties.

Indus Limited has a policy to change their auditors every year. Explain  whether the auditors of Indus Limited should prepare proper working  papers, despite the fact that they would not be appointed for the next  term?

ISA requires preparation of working papers in all circumstances because working papers assist in supervision and review of audit work. Also, the working papers provide an evidence for work performed.

The preparation of working papers is an integral part of the auditor’s  responsibilities . Identify the factors that the auditor should consider  while determining the form, content and extent of audit working papers.

The auditor should consider the following factors while determining the form, content and extent of audit working papers:

(i) The nature of the audit procedures to be performed (ii) The identified risks of material misstatement (iii) The extent of judgment required in performing the work and evaluating the results (iv) The significance of the audit evidence obtained (v) The nature and extent of exceptions identified (vi) The need to document a conclusion or the basis for a conclusion not readily determinable from the documentation of the work performed or audit evidence obtained and. (vii) The audit methodology and tools used.

You work as assistant manager in one of the leading firm of chartered  accountants. Your partner has asked you to prepare a presentation for  some of the newly recruited staff. As part of this presentation, you are  required to explain the nature and objectives of maintaining ‘Audit  Documentation’ .

Nature and objectives of maintaining Audit Documentation

Audit documentation should provide:

• Evidence of the auditor’s basis for a conclusion about the achievement of the overall objective of the auditor; and

Audit documentation serves a number of additional purposes, which include:

You are the training manager at Guava & Co., Chartered  Accountants.  Some trainees in the firm have requested you to clarify the following  issues:

(a) Can the auditor discard any audit document, forming part of his  opinion, after the issuance of the auditor’s report?

(b) The changes that can be incorporated during the final the  assembly process citing three such examples.

(c) The circumstances under which it becomes necessary to modify  the existing audit documents or add new audit documents after  the issuance of the auditor’s report and the matters that should be  documented in such a situation.

Required Offer appropriate explanations for each of the above issues.

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Head of IT Assignment - Audit Function

HEAD OF IT ASSIGNMENT - Audit Function

The Inspection Générale (IG) is the internal audit function of the group. It carries out audits on all the activities of the Group in France and worldwide, relying either on generalists or specialists auditors, either through central or local teams.

The Iberian Peninsula IG Hub is a team of auditors covering BNP Paribas Group entities operating in Spain and in Portugal, countries where BNP Paribas develops both domestic business activities and large outsourced service centers. The hub intends to develop a practice for auditing IT activities operated in the Iberian Peninsula and from time to time, for supporting other IT audits over the EMEA region.

In this respect, the Iberian Peninsula IG Hub looks for a Head of assignment with a strong IT knowledge and experience in order to lead audit IT assignments. Knowledge in the fields of Cybersecurity and IT Audit will represent an additional advantage. The Head of IT Assignment will report directly to the Head of Iberian Peninsula Hub and will be functionally part of the worldwide lIT Audit Line.

KEY RESPONSIBILITIES

• The Head of IT Assignment ensures the operation of Information Communication & Technology (ICT)and Cybersecurity audit works on his/her perimeter of responsibilities in compliance with the objectives, the principles and the norms of the BNP Paribas Group and with the regulations applicable to the entities audited. IT audits cover the following domains: IT governance, administration, development & maintenance, IT production, IT security and IT continuity & resilience.
• The Head of IT Assignment manages the IT audit assignments as follows:
• Prepares the assignment: definition of the precise scope, audit methodology to be developed, planning and resources;
• Ensures a proper evaluation of the perimeter to be audited by developing a thorough understanding of the activities within the scope, its strategy and governance, the related risks and a first assessment of the overall setup in terms of governance, risk management and controls.;
• Ensures relevant investigations and tests on key areas of the IT framework, identifying potential gaps to referents of vulnerabilities.
• Ensures formalization of findings and recommendations to remediate the identified weaknesses and their acceptation by the auditees;
• Ensures the build-up and presentation of all assignments deliverables.
• The Head of IT Assignment ensures the review and validation of the evidences of implementation of the IT recommendations issued over the Iberian Peninsula Hub’s perimeter.
• The IT Head of Assignment ensures the build-up of the yearly Risk Assessment of Iberian Peninsula’s IT activities and prepares the IT multi-year audit plan: ORGANIZATION

The IT Head of Assignment will be based in Madrid and be directly in charge of the IT related audits of entities located in both Spain and Portugal. He/she relies on a team of a few IT specialists Auditors located in Madrid and potentially in Lisbon and may also leverage on a large pool of generalist auditors for the less technical part of the assignments.

SKILLS : Languages :

• English (fluent);
• Spanish (sufficient level or one to be necessarily acquired);
• French or Portuguese (if possible).

Technical skills :

• IT Audit practices;

Strong technical background in IT activities notably IT Development and Maintenance, IT Security and namely Cyubersecurity, and IT Continuity; Behavioral skills :

Creativity & Innovation / Problem solving;

• Analytical skills;
• Ability to synthetize and present things in a way understandable to non IT readers;
• Adaptability;
• Team building;
• Communication.

Transversal skills :

• Ability to manage a team;
• Ability to understand, explain and support change;
• Ability to anticipate business / strategic evolution;
• Ability to inspire others & generate people's commitment;
• Ability to develop and leverage networks.

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PMI PMP-Project Management Professional Practice Exam Q. 1231 to 1240

Largest Questions Bank with All Unique Questions prepared by Project Management Experts as per the latest PMBOK

(Quickly Review Your Skills before appearing for PMI PMP Certification Exam)

Set of 10 Questions

Correct Answer has been Highlighted in RED

Q. 1231: What is the primary difference between a risk audit and a risk reassessment?

A. A risk reassessment is conducted at the completion of a major phase; audits are conducted after the project is complete. B. Project stakeholders conduct risk audits; management conducts reassessments. C. Risk reassessments are regularly scheduled; risk audits are performed as defined in the project’s risk management plan. D. There is no difference; they are virtually the same.

Section: Mix Questions

Justification in favor of the correct answer: Risk reassessment is an ongoing activity by the project team. Risks should be discussed at every status meeting. Risk audits are performed during the project life cycle to examine and document the effectiveness of risk responses. They are conducted at appropriate frequencies as defined in the risk management plan.

<<<<<< =================== >>>>>>

Q. 1232: Accurate and unbiased data are essential for perform qualitative risk analysis. Which one of the following should you use to examine the extent of understanding of project risk?

A. Data quality assessment B. Project assumptions testing C. Sensitivity analysis D. Influence diagrams

Justification in favor of the correct answer: Perform qualitative risk analysis requires accurate and unbiased data. The use of low-quality data may result in a qualitative risk analysis that is of little use to the project manager regarding understanding of the risk, data available about the risk, data quality, and data reliability and integrity.

Q. 1233: Assigning more talented resources to the project to reduce time to completion or to provide better quality than originally planned are examples of which one of the following strategies?

A. Enhance B. Exploit C. Share D. Contingent response

Justification in favor of the correct answer: Although it might have a negative connotation, exploitation is a strategy used for risks with positive impacts where the organization wants to ensure that the opportunity is realized.

Q. 1234: Which of the following is NOT an objective of a risk audit?

A. Confirming that risk management has been practiced throughout the project life cycle B. Confirming that the project is well managed and that the risks are being controlled C. Evaluating the effectiveness of risk responses in dealing with identified risks D. Ensuring that each risk identified and deemed critical has a computed expected value

Justification in favor of the correct answer: It is not feasible or necessary to quantify every risk. Therefore, a risk audit should never have as an objective to ensure that each project risk has a computed expected value.

Q. 1235: Contingency planning involves:

A. Defining the steps to be taken if an identified risk event should occur B. Establishing a management reserve to cover unplanned expenditures C. Preparing a stand-alone document that is separate from the overall project plan D. Determining needed adjustments to make during the implementation phase of a project

Justification in favor of the correct answer: For some risks it is appropriate for the project team to make a response plan that will be executed only under certain predefined conditions if it is believed that there will be sufficient warning to implement the plan.

Q. 1236: Assume that you are working on a new product for your firm. Your CEO learned that a competitor was about to launch a new product that has similar features to those of your project. The competitor plans to launch the product on September 1. It is now March 1. Your schedule called for you to launch your product on December 1. Your CEO now has now mandated that you fast track your project so you can launch your product on August 1. This fast-track schedule is an example of an:

A. Unknown risk B. A risk taken to achieve a reward C. A response that requires sharing the risk D. A passive avoidance strategy

Section:  Mix Questions

Justification in favor of the correct answer: Project risk has its origin in the uncertainty that is present in all projects. Organizations and stakeholders are willing to accept varying degrees of risk, and risks that are threats to the project may be accepted if the risks are within tolerances and are in balance with the rewards to be gained. This example of adopting a fast-track schedule is a risk taken to achieve the reward created by the earlier completion date.

Q. 1237: As head of the project management office, you need to focus on those items where risk responses can lead to better project outcomes. One way to help you make these decisions is to:

A. Use a probability and impact matrix B. Assess trends in perform quantitative risk analysis results C. Prioritize risks and conditions D. Assess trends in perform qualitative risk analysis results

Justification in favor of the correct answer: The probability and impact matrix can be used to classify risks according to their level of impact and to prioritize them for future quantitative analyses and responses based on their rating. Typically these risk rating rules are specified by the organization in advance of the project. The matrix specifies combinations of probability and impact that lead to rating the risks as low, moderate, or high priority.

Q. 1238: You are the project manager for the construction of an incinerator to burn refuse. Local residents and environmental groups are opposed to this project. Management agrees to move this project to a different location. This is an example of which one of the following risk responses?

A. Passive acceptance B. Active acceptance C. Mitigation D. Avoidance

Justification in favor of the correct answer: Risk avoidance involves changing the project management plan to eliminate the threat entirely.

Q. 1239: What doctrine causes a party to relinquish rights under a contract because it knowingly fails to execute those rights?

A. Assignment of claims B. Material breach C. Waiver D. Warranties

Justification in favor of the correct answer: Under the doctrine of waiver, a party can relinquish rights that it otherwise has under the contract. If the seller offers incomplete, defective, or late performance, and the buyer’s project manager knowingly accepts that performance, the buyer has waived its right to strict performance. In some circumstances, the party at fault may remain liable for provable damages, but the waiver will prevent the buyer from claiming a material breach and, thus, from terminating the contract.

Q. 1240: Which term describes those costs in a contract that are associated with two or more projects but are not traceable to either of them individually?

A. Variable B. Direct C. Indirect D. Semi-variable

Justification in favor of the correct answer: The nature of an indirect cost is such that it is neither possible nor practical to measure how much of the cost is attributable to a single project. These costs are allocated to the project by the performing organization as a cost of doing business.

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NEPA Assignment: FDOT Self-Assessment and FHWA Audit

NEPA Assignment Course:Self-Assessments and FHWA Audit 101Presenter: Eric Whitehead

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The environmental review, consultation, and other actions required by applicable federal environmental laws described in this training are carried out by FDOT pursuant to 23 U.S.C. §327 and a Memorandum of Understanding dated [INSERT DATE], executed by FHWAand FDOT.

Learning Objectives

• Lesson 1 – OEM Self-Assessment Process

• Lesson 2 – OEM and District Roles in Self-Assessment

• Lesson 3 – Connecting the dots… Self-Assessment and FHWA Audits

• Lesson 4 – FHWA Audit Process

• Lesson 5 – Preparing for FHWA Audits

Lesson 1:OEM Self-Assessment Process

OEM Self-Assessment Authority and Purpose

• FHWA and FDOT NEPA Assignment Program Memorandum of Understanding (MOU)

• FDOT has assumed responsibilities for the National Environmental Policy Act (NEPA) and related laws

• Annual Self-Assessments to ensure compliance with the law, MOU and FDOT’s manuals and procedures

• OEM Quality Assurance/Quality Control Plan

• Identify Successful Practices and Opportunities for Improvement

Scope of Self-Assessment Process

• Adherence to MOU and Performance Measures

• OEM Target Issues

• Issues from previous Self-Assessment and FHWA Audit

• 1st Self-Assessment

Respond to FHWA pre-audit questions

Determine if FDOT processes and systems are in place to meet MOU requirements

Provide a list of NEPA approvals and decisions (Type 1 CE, Type 2 CEs, EA, FONSI, DEIS, FEIS, FEIS/ROD, ROD) and Section 4(f) Determinations

MOU Performance Measures

A. Compliance with NEPA, FHWA NEPA regulations and other federal environmental statutes and regulations

Maintain documentation regarding compliance with responsibilities assumed under this MOU.

B. QA/QC for NEPA Decisions

Maintain internal QA/QC measures and processes, including a record of:

o Completion of legal sufficiency reviews by FDOT’s Office of General Counsel (OGC)

o Compliance with FDOT’s environmental document content standards and procedures, including those related to QA/QC

C. Relationship with agencies and the general public

Maintain communication considering timeliness and responsiveness among FDOT, federal and state resource agencies, Indian Tribes, and the public

Provide opportunities for public involvement and comment

Use NEPA issue resolution process, as appropriate

D. Increased efficiency and timeliness in completion of the NEPA process

Compare time of completion of environmental document (e.g. NEPA documents and technical reports) approvals before and after assumption of responsibilities

OEM Self-Assessment Process

Planning Evaluation Reporting

Up to30 days

Up to 15 days

OEM Self-Assessment Process – Planning Stage

• Initiate Self-Assessment Review

• Select Review Team

• Notify Districts and Hold Kick-off Webinar

• Conduct Pre-Assessment Survey

• Select Target Issues

Initiating the Self-Assessment Review- OEM:

• Opens a self-assessment file

• Creates and obtains approval for a self-assessment plan

• Completes required fields in the Self-Assessment Tracking System

The Self-Assessment Review Team:

• OEM Director or designee appoints a self-assessment team comprised of

OEM QA/QC Coordinator

at least 2 OEM staff depending on the topics to be covered in the review

• Team will consult with Subject Matter Experts and consultants as needed

• Team members will coordinate with District personnel as needed after OEM Director notification and kick-off webinar

• Team will document interviews, file and record reviews and any work effort related to the self-assessment

Notifying the Districts:

• Director of OEM sends notification announcing the statewide Self-Assessment to include a schedule and Review Team member names

• Kick-off webinar with the Districts to discuss the Self-Assessment process, established expectations, and specific timelines

Conducting the Pre-Assessment Survey with following actions:

• Send to District Environmental Management Office Leadership

• Send to OEM supervisors and document reviewers

• Seven days to complete

• Tabulate results and report to OEM Management

• Supports identification of self-assessment target issues

Selection of Target Issues for Self-Assessment:

• Target Issues based on review of:

Data reports of Performance Measures status

Pre-assessment Survey results

Previous FDOT Self-Assessment recommendations

Previous FHWA audit findings, observations

• Director of OEM makes final determination of target issues

OEM Self-Assessment Process – Evaluation Stage

Determine Projects for Review:

• Population of projects subject to review is based on a list of NEPA approvals and decisions that FDOT certified compliant

• QA/QC Coordinator extracts random sample

• Team members assigned projects for review from the sample

Self-Assessment Tools:

•Review sample of environmental documents and

records in SWEPT and, if needed, in the District office

to include:

Type 1 and Type 2 CEs

EAs with FONSI

DEIS, FEIS/ROD

Section 4(f) Determinations

Status of Environmental Certification forms

OEM Self-Assessment Process – Evaluation Stage (Continued)

•Onsite visits to District offices, as appropriate

• Interviews with District & resource agency staff and other stakeholders

•Weekly meetings during Evaluation Stage

• Final meeting to discuss and document findings and observations

OEM Self-Assessment Process – Reporting Stage

• Draft Report prepared by Self-Assessment Team within 7 days of evaluation stage

Observations

Non-Compliance Observations

Follow-up actions

• Circulated to involved Districts for a 7 day review

• Final Draft Report reviewed with OEM management and finalized, and sent to Districts with any observations

• Summary Report is developed, reviewed and approved by management, and provided to FHWA

Poll Question

What is covered in a self-assessment?

A self-assessment team will review project files and documents, interview District staff as needed, and prepare a report of findings.

Lesson 2:OEM and District Roles in Self-Assessment

Role of OEM

Quality Assurance / Quality Control (QA/QC)

CONSULTANTS• Develop individual QC Plans for each project

• Adhere to QC Plan

• QC prior to document submittal

• Submit QC certification form with submittal

• Maintain QC markups and QC certification

Guidance:• QA/QC Policy Topic No.: 001-260-001• FDOT Project Management Handbook, Part 1, Chapter 16

DISTRICTS CONSULTANTSDISTRICTS • Ensure consultant QC Plan is being adhered

• Use Electronic Review Comment (ERC) system

• Utilize technical reviewers and District resources

• Request OEM support when needed

• Maintain records of QC certifications, and, when requested, QC markups

• Upload Final Documents in SWEPT

District Role in Self-Assessment

• Participate in statewide Pre-Assessment Survey used to help determine target issues

• Answer questions and provide information as needed

• Use self-assessment process for continual improvement

• Collaborate with OEM to develop an Action Plan, if needed, within 20 days from publication of the final self-assessment report

• Implement approved Action Plan, if required

• Follow through to resolve any issues

How does FDOT use Self-Assessment Results?

• Shares and promotes successful practices statewide

• Provides summary report to FHWA

• Identifies opportunities for improvement

• Reviews District Action Plan and advises if acceptable within 10 days of receipt

• Tracks and monitors Action Plan implementation

Lesson 3:Connecting the dots… Self-Assessment and FHWA Audits

Connecting Self-Assessment to FHWA Audit

• Self-Assessment must be completed before

FHWA starts their audit

• Per the executed MOU, we must provide the

summary report to FHWA at least 1 month prior

to a scheduled FHWA audit on-site visit

• OEM submits a summary report of the self-

assessment to FHWA that must contain a scope,

methodology, successful practices, opportunities

for improvement, any corrective actions, and a

statement from the Director of OEM

Director Statement

Based upon this 2017 Self-Assessment Report, I find FDOT has carried out NEPA Assignment environmental responsibilities in accordance to 23 U.S.C. §327, the Memorandum of Understanding dated [INSERT DATE], and all applicable federal environmental laws and policies. This Report shows FDOT’s progress toward attaining the performance measures is meeting or exceeding expectations.

Self-assessments are not connected to the FHWA annual audit.

Lesson 4:FHWA Audit Process

Requirement for FHWA Audits

• Pursuant to 23 U.S.C. §327(g), FHWA is required to conduct four annual Program audits of the FDOT NEPA Assignment Program

• Audits will be used by FHWA to assess FDOT's compliance with the MOU, including:

Ensuring compliance with applicable federal laws and policies

Evaluating FDOT's progress toward achieving the performance measures in the MOU

• Audits will be used by FHWA to inform the USDOT Secretary's annual report to Congress

Focus of FHWA Audits – Seven Core Areas

FHWA will review the processes and procedures used to reach project decisions. The audit will focus on the fulfillment of NEPA assignment responsibilities in seven core areas:

• Technical Competency and Organizational Capacity

• Adequacy of Financial Resources

• Quality Assurance and Quality Control

• Attainment of Performance Measures

• Compliance with MOU requirements

• Compliance with Federal Laws and Policies.

Limited Focus of FHWA Audit

FHWA will not evaluate project-related decisions, as these are the sole responsibility of the State

Audit Support Plan

• Ensures FDOT is ready for FHWA audits

• Guides coordination and communication with FHWA

Provide needed information

Provide access to documents and records

Assist in coordinating staff interviews

• Keeps FDOT and OEM management aware of audit activities and reporting

OEM Audit Coordinator Responsibilities

•Develops audit schedules with the FHWA Audit Coordinator in advance of audit

•Submits FHWA Summary Report (from the Self-Assessment)

•Tracks audit activities upon Notice of Audit

•Coordinates responses to pre-audit questions

OEM Audit Coordinator Responsibilities (Continued)

•Coordinates with Districts to make office arrangements for audit team visit

•Facilitates access to environmental information and personnel

•Coordinates and ensures timely OEM response to audit report

•Distributes FHWA audit report and conduct follow-up activities as needed

District Audit Responsibilities

•Ensure staff and consultants are familiar with MOU

•Ensure staff and consultants understand what NEPA assignment means

•Work cooperatively with OEM Audit Coordinator and FHWA auditors

•Designate logistics contact person to assist with all on-site arrangements

•Designate primary District contact to work with OEM and FHWA audit team

District Audit Responsibilities (Continued)

•Refer FHWA to OEM for any requests regarding the FHWA program assessment review

•Timely response to FHWA audit request for follow-up actions

•Develop appropriate, responsive and timely action plans, if required

• Implement action plans until issues are resolved

Overview of FHWA Audit Process

FHWA & FDOT Audit Coordinators develop

general audit schedule within 180 days of

MOU anniversary date

Director of OEM sends the Self-

Assessment Summary Report to FHWA at least 1 month prior to

start of audit

FHWA initiates audit with

Notification Letter & sends

Pre-Audit Questions

FDOT Audit Coordinator responds to

pre-audit questions

FHWA & FDOT Audit

Coordinators develop specific audit schedule

at least 2 weeks prior to the

scheduled audit

FHWA selects Audit Team (FDOT can review and

comment on team

composition)

Audit sample selected from

NEPA approvals and

Audit Team reviews OEM

files and records and interviews OEM staff as appropriate

Audit Team conducts

interviews and collects

documentation in the Districts

Audit Team prepares report

with findings and observations

FHWA notifies FDOT when final

audit report is posted in the

Federal Register

FHWA incorporates comments from the

Federal Register, finalizes, and publishes final audit report in Federal register

OEM provides comments on the

draft audit report to FHWA

FHWA Audit Coordinator provides draft audit report to OEM for

comment within 14 days

FHWA incorporates FDOT comments and publishes draft audit

report in Federal Register for 30 day comment period

OEM notifies Districts of FHWA observations, non-compliance observations and corrective actions, tracks implementation, and responds to FHWA

FHWA, OEM, and Districts track

implementation of corrective actions

FHWA provides status update in

next annual audit

OEM posts FHWA audit reports and tracks

and monitors progress until actions are complete

Summary of FHWA Audit Process

• Appoints an audit coordinator

• Sends pre-audit questions for FDOT response prior to the audit

• Designates an audit team that selects a sample of NEPA decisions and approvals for review and evaluation

• Drafts report of findings and observations, and sends to Director of OEM for comment

• Posts to Federal Register for a period of 30 days for public comment

• Finalizes and publishes audit report in Federal Register

• Monitors corrective actions through FDOT

self-assessments and future audits until issues resolved

Why does FHWA conduct audits?

Three of the 7 core areas of a FHWA audit are Staffing, Quality Assurance and Quality Control, and Technical Competency and Organizational Capacity.

The FHWA audit team is responsible to select a sample of approved NEPA decisions and actions to assess, and:

Lesson 5:Preparing for FHWA Audits

How do you Prepare for the Audit?

• Understand the purpose of the audit

• Understand the scope of the audit

• Ensure that files are complete and contain all necessary documentation

Documentation and consistent record-keeping are key

“If you did not document your action, it did not happen.”

How do you Assist with an Audit?

• Listen carefully to the auditor’s questions and answer what is asked

• Keep answers short, focused, and accurate

• Provide answers based upon your expertise related to specific job duties

• If you do not understand the auditor’s question, ask for clarification

• Ask for time to respond properly, as needed

• State that you need to check on that issue and will respond within 24 hours

• If you do not clearly recall the project details, let the auditor know you need to review the project file and get back with an immediate response the same day or within 24 hours.

• If the auditor has clarified a question that you still do not understand, refer the auditor to your supervisor for a response

• Always be courteous and professional with auditors

• If a conflict arises with an auditor, do not take action yourself. Notify your supervisor, who will notify the OEM Audit Coordinator

Making sure my environmental project files are complete and my work is documented, understanding the scope of the audit, and listening carefully to auditor questions so I may respond accurately will help me prepare for and assist with the audit.

• The MOU requires annual self-assessments to review performance measure results and compliance with NEPA and federal environmental laws

• The first self-assessment will focus on FHWA pre-audit questions and our readiness for NEPA assignment

• Self-assessments will have a planning phase, evaluation phase and reporting phase

• We are required to give FHWA a summary of the self-assessment report no later than 1 month before the FHWA audit

Summary (Continued)

• FHWA is required to conduct 4 annual audits by 23 U.S.C. §327(g) to determine if we are compliant to the MOU, laws and policies, and if we are achieving our performance measures

• Audits focus on our processes and systems that ensure our environmental documents comply with law and policy, NOT our project decisions

• A FHWA audit team will review project files, interview District employees, and draft and finalize a report to be posted in the Federal Register

• Employees should be prepared, cooperative, and focused during the audit visit

• If you have questions or need additional information, please contact:

◆ Eric Whitehead, Quality Assurance and Quality Control Coordinator

◆ [email protected]

◆ (850) 414-5326

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