Query:
A manufacturing company in Bahrain is seeking XYX Consulting firm to do an internal
audit of its manufacturing company in Bahrain. It is into manufacturing cement and supplies
to construction companies in Bahrain and export as well.They are seeking your firm to
present your scope of audit engagement etc.Draft a detailed audit scope covering all key
risk areas ,duly considering fully complying with international standards on auditing for
such kind of secotr/industry including the need to set benchmark professional standards. It
is not an islamic company and so sharia audit is not required. Guide using industry audit
standards and international audit standards?
Answer:
Audit Scope for Manufacturing Company in Bahrain
1. Introduction
This audit scope outlines a comprehensive internal audit plan for a cement manufacturing
company in Bahrain. The scope is designed to address key risk areas and ensure
compliance with international auditing standards applicable to the manufacturing sector.
The audit will focus on providing assurance on the effectiveness of internal controls, risk
management processes, and compliance with relevant laws and regulations.
2. Relevant Standard/Law References
The internal audit will be conducted in accordance with the International Standards for the
Professional Practice of Internal Auditing issued by the Institute of Internal Auditors (IIA).
Key standards and guidelines that will be followed include:
a. Standard 2100 – Nature of Work: The internal audit activity must evaluate and contribute
to the improvement of the organization’s governance, risk management, and control
processes using a systematic, disciplined, and risk-based approach.
b. Standard 2200 – Engagement Planning: Internal auditors must develop and document a
plan for each engagement, including the engagement’s objectives, scope, timing, and
resource allocations.
c. Standard 2300 – Performing the Engagement: Internal auditors must identify, analyze,
evaluate, and document sufficient information to achieve the engagement’s objectives.
d. Standard 2400 – Communicating Results: Internal auditors must communicate the
results of engagements.
IAASB-2023-2024-Handbook-Volume-1, para 3-7, page 111
Additionally, the audit will consider relevant Bahrain laws and regulations applicable to the
manufacturing sector, including:
e. Bahrain Commercial Companies Law f. Environmental regulations issued by the
Supreme Council for Environment g. Labor laws and regulations
Bahrain Commercial Law, Article One, page 3
3. Detailed Explanations
The internal audit scope will cover the following key areas:
i. Production and Quality Control:
º Review production processes and quality control measures
º Assess compliance with industry standards and best practices
º Evaluate efficiency and effectiveness of production operations
ii. Financial Management and Reporting:
º Review financial reporting processes and internal controls
º Assess compliance with International Financial Reporting Standards (IFRS)
º Evaluate the effectiveness of budgeting and forecasting processes
iii. Supply Chain and Inventory Management:
º Review procurement processes and supplier management
º Assess inventory control procedures and stock management
º Evaluate logistics and distribution processes
iv. Health, Safety, and Environment (HSE):
º Review HSE policies and procedures
º Assess compliance with environmental regulations and industry standards
º Evaluate emergency preparedness and response plans
v. Human Resources and Labor Compliance:
º Review HR policies and procedures
º Assess compliance with labor laws and regulations
º Evaluate employee training and development programs
vi. Information Technology and Cybersecurity:
º Review IT governance and security policies
º Assess data protection and privacy measures
º Evaluate business continuity and disaster recovery plans
vii. Export Operations:
º Review export processes and documentation
º Assess compliance with international trade regulations
º Evaluate foreign exchange risk management
viii. Corporate Governance and Risk Management:
º Review corporate governance structure and practices
º Assess enterprise risk management framework
º Evaluate compliance with Bahrain’s corporate governance code
For each area, the audit will:
1. Identify and assess risks
2. Evaluate the design and operating effectiveness of internal controls
3. Test transactions and processes for compliance with policies and regulations
4. Analyze data to identify trends, anomalies, and areas for improvement
5. Provide recommendations for enhancing efficiency and effectiveness
The audit will utilize a risk-based approach, focusing on areas of highest risk and strategic
importance to the company. Materiality thresholds will be established for each audit area to
ensure efficient use of resources and focus on significant issues.
coal industry, Chapter 14, page 81
Alternative strategy
Based on the comprehensive nature of the requested audit scope, an alternative strategy is
not required. The proposed scope already covers all key risk areas and aligns with
international auditing standards and best practices for the manufacturing sector.
4. Used Cases/Interpretations & Disclosures by the listed entities
Bahrain Flour Mills Company B.S.C. – 2022:
In their 2022 annual report, Bahrain Flour Mills Company B.S.C., a manufacturing entity in
Bahrain, provided insights into their audit approach:
“As part of an audit in accordance with ISAs, we exercise professional judgement and
maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the board of directors.”
This approach demonstrates the importance of risk assessment, internal control evaluation,
and professional skepticism in conducting a comprehensive audit.
Al-Matahin-AR-Eng_2022_FINAL, page 28
The Bahrain Ship Repairing and Engineering Company BSC – 2022:
In their 2022 annual report, The Bahrain Ship Repairing and Engineering Company BSC,
another manufacturing entity in Bahrain, highlighted the importance of internal control
assessment in their audit process:
“Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Group’s internal control.”
This approach emphasizes the need to understand and evaluate internal controls as part of
the audit process, which is crucial for a manufacturing company.
BASREC-Annual-Report-EN-2022, page 26
5. Summary
The proposed internal audit scope for the cement manufacturing company in Bahrain is
comprehensive and aligned with international auditing standards and best practices. It
covers all key operational areas, including production, financial management, supply chain,
HSE, human resources, IT, export operations, and corporate governance.
The audit will employ a risk-based approach, focusing on areas of highest risk and
strategic importance. This approach will ensure efficient use of resources and provide
valuable insights to management on the effectiveness of internal controls, risk
management processes, and compliance with relevant laws and regulations.
Key aspects of the audit scope include:
1. Compliance with International Standards for the Professional Practice of Internal
Auditing
2. Adherence to Bahrain’s legal and regulatory requirements
3. Comprehensive coverage of all significant business processes
4. Focus on risk assessment and internal control evaluation
5. Emphasis on providing actionable recommendations for improvement
By implementing this audit scope, the company can enhance its operational efficiency,
strengthen its risk management practices, and ensure compliance with relevant standards
and regulations. This will ultimately contribute to the company’s long-term success and
sustainability in the competitive cement manufacturing industry.
Other relevant standards that may be applicable but were not directly explained in the
response include:
º ISO 9001:2015 Quality Management Systems
º ISO 14001:2015 Environmental Management Systems
º ISO 45001:2018 Occupational Health and Safety Management Systems
º COSO Internal Control – Integrated Framework
6. Attribution
The information provided in this response is based on International Standards for the
Professional Practice of Internal Auditing as issued by the Institute of Internal Auditors (IIA)
and the International Standards on Auditing (ISAs) issued by the International Auditing and
Assurance Standards Board (IAASB). The specific standards referenced are ISA 200 and
related auditing standards. For complete and authoritative guidance, please refer to the full
standards available through the official IIA and IAASB websites.
Internal Audit Engagement Scope
