Internal audit is an independent appraisal function which is established by the management of an organization for the review of its internal control system as a service to the organization. To learn about the scope of internal audit.
The word 'Audit' is a derivative of the word 'Audition' which me 'to hear'. In earlier times, the Kings used to hear their accountants narrate the accounts verbally. However, as the complexity of the accounting function grew, need was felt to thoroughly check the accounts for mistakes misclassification and document the findings in a written form so that it can be used by the Management, stakeholders, investors, Government and various other bodies. This process is known as Auditing or Audit.
CARO me company audit report order 2004.It describes the matter on witch Statutory Auditors has to report in their Audit Report.
An audit helps keep track of where the money is going and makes sure the money is going where it is supposed to and not in someone's pocket. An audit can also help a company know if it is losing or making more money.
It is a compulsory audit done by a CA.
Finance Audit conduct by the CA to compliance the legal requirements of monitory issues.
Disadvantages are following:
Vouching is the process of checking the authentication of the voucher maintain by the management with the respective supporting document.
Vouching is the process of checking for the existence an example for this is checking from the final record to the supporting document.
Social audit is performed to know the corporate social responsibility.
Final audit is commenced when all account has been closed and final accounts is been prepared.
Audit control procedures are policies and procedures in addition to control environment, (altitude,awareness and actions of directors and management regarding the internal control system) which the management has established to achieve the entity specific objectives.the mix of type of controls implemented by the management will depend on the control objectives and the size of the entity.
The purpose of internal audit is to keep proper control over business activities. When there is proper control there is maximum efficiency. The internal auditor determines the degrees of control over work. The purpose of internal audit is to evaluate the accounting system.
It is concerned with checking proper authority for tractions like purchase, retirement and disposal of fixed assets. The vouchers can be compared with entries in order to determine that figures are facts.
The purpose of internal audit is to help the management. Internal auditor can point out the weakness. The internal audit can be used as a tool to correct the situation. The management functions can be performed properly. The purpose of internal audit is to review the working of business.
The working of current tear can be reviewed in detail just to note the successful area of working. There is a need to locate the weak points. The corrective measures can be taken for proper working.
One auditing firm can audit other auditing firm.
An internal audit is one which is conducted by the internal auditors of the company. It is not mandatory for the company and the company just conducts it to keep a check on the operations of the company.
On the other hand statutory audit is very important because it is by the external auditors and it is mandatory for all kinds of companies. Statutory audit is usually conducted for various purposes like tax regulatory requires it for taxation purposes.
The internal audit is conducted to help the management. The weakness of the management is disclosed. The external audit is conducted to help the shareholder. The rights of owners are protected. The appointment of internal audit is made by the management. The appointment in external audit is made by the shareholders. Internal audit is the part of internal control.
Providing key description on the type of audit to be taken place and to analyse the responsibilities during the field work as well as client to be aware of what is going to happen after the field work.
Advantages of Internal Audit are following:
External audit is that which is critical review of the representation of the published financial statements it is compulsary for all company;s which are listed in the stock exchange.
This is a review of operation carried out sometimes continuously specially assigned staff with in the client business.
External audit is the not the part of internal control.The internal audit can suggest improvement in internal check system. The external audit can not suggest improvement in internal check system. The internal audit can perform his duties under the terms of appointment. The management can limit the scope of work at any time.
The external auditor can perform his work to terms of appointment and other prescribed law. The scope is very wide. Internal audit is an employee of the company. He is not an independent person. External auditor is not an employee of the company.
With internal audit we always need to be careful of any manipulations within the company itself.Errors and frauds within the company cannot be denied /overlooked at any cost.
It is requested by Audit committee or the Company's; shareholders. The main objective of modern Audit is to help the MGMT to achieve its various objectives by bringing a systematic approaches and evaluating the risks.
Use audits as opportunities to train others. Ask for a volunteer (who is not an auditor) to walk through the audit process with you as an assistant. This will provide others with a better understanding of what audits are and why they are necessary.
Invite all the auditees to the closing meeting. Having been an auditee, I know it helps to hear audit findings firsthand, the positive as well as the negative.
Involving people creates a feeling that everyone is a vital contributor to the goal of the company - compliance.
Compliance procedures are tests designed to obtain reasonable assurance that these internal controls on which audit reliance is to be placed are in effect. The auditor can test the functioning of the controls and not the tractions. He can check the exceptions and departure from suggested internal control. When there is strict supervisory control the staff can not digress from prescribed control procedures. Compliance procedures can be applied with the help of audit sampling.
The samples can be selected from various categories of traction in order to test the control aspect. He can examine evidence through inspection of signature. He can apply re performance and observation techniques. He can check custodial control over assets. He can examine the segregation of duties. He can go through supervisory controls. The auditor can test all the items included in the sample.
The compliance procedures can ensure the auditor that internal control exists. The control is operating effectively. The control has so operated throughout the period of intended reliance.
Intangible assets are those which we can't be seen like goodwill of the company.
The function of internal audit is concerned with analysis of internal check. The internal audit can look into the duties of each employee. All employees are provided jobs on the basis of their abilities. The auditor can test the effectiveness of internal check. The function of internal audit is examining the application of legal requirements.
The accounts are prepared under certain legal frame work. Verification of accuracy is a function of internal audit. The accuracy of accounting books and records can be verified with the help auditing techniques. The audit techniques include inspection, observation, inquiry, confirmation, computation and review. An auditor can check the accuracy through these techniques.
Confirmation of liability is a function of internal auditor can determine the work done by every person. The carelessness or negligence on the part of worker is noted. The concerned person is given a chance to explain his position. If the reason is not justified, the liability is confirmed. The function of internal audit is to examine the assets protection. The proper record is to be maintained.
The possession must be in the hands of senior officer. The assets are used for business only. There are proper purchase and disposal of these assets. The internal auditor can check that assets are protected.
The basic principles of financial internal control are explained below:Financial and accounting operations must be separated that is the handling of cash and the recording of the movement thereof should be done by different persons. Responsibility for the performance of the job must be clearly stated so that there may be no room for doubt or confusion subsequently.
Too much confidence should not be pinned in one individual. Nearly all frauds have been committed by trusted officials or employees. It is interesting to note that frauds have occurred owing to their being trusted. Relation principle relating to trfer of an employee from one job to another should be the inflexible guiding rule. This is an effective safeguard against collusion and is recognized as an important canon of sound organization.
Mechanization of the work wherever feasible and practicable should be resorted to, mechanical devices such as cash register, recording time clocks, calculation machines should be introduced. A system of control accounts should elegantly be fitted in the book keeping system.
The work should be so arranged that work done by one employee should be properly checked by independent employee. Such continuous and constant checking goods moral control and the errors and the frauds cannot go undetected.
This charter describes the mission, independence and objectivity, scope and responsibilities, authority, accountability and standards of the Internal Audit function.
A charter is basically a delegation or grant of authority from a person or organization of authority to another person or organization. The purpose of an internal audit charter is to compel the departments that need to be audited to provide the information required by the auditor.
Without this charter or similar authority most managers wouldn't see any benefit to being audited and would likely refuse to provide anything the auditor needed.
Internal Audit is an audit, it is carried out either by a separate department within the bank or a firm of chartered accountant.
This is the audit not specially required by law this scope of the audit will be outline by the contract between the auditor and the clients.
Planning is an essential feature of internal audit. The auditor can plan to check the accounting system. The plan may relate to accounting functions like purchase, sales, income, expenses and shares. The planning includes degrees of risk and extent of audit.
It also states the nature of audit work. Controlling is an essential feature of internal audit. Auditor can examine the operations of accounting system. He can control audit work through audit program. The whole audit work is distributed among audit staff.
Recording is an essential feature of internal audit. The audit can record the facts and figures in order to express his views in the business activities. The audit note book and audit working papers are used to record the information. Independence is essential element of internal audit.
The work of internal audit is done by an employee of the company. He must not be influenced by management. He must be free in developing audit program, audit investigation and audit reporting.
Attempt of a legally review of the accuracy of an entities financial records.
Internal audit nothing but the checking the product that you produced.
External audit is checking your product by your customer.
Here it me you may not find mistakes in your processes but a third man who comes and check the system he may see some deviations in the system and give suggestions for the improvements of the system.
Tangible Assets are those assets which we can see or touch like fixed asset ,machinery,etc.