Sunday, 29 December 2019

Unit 6: Internal and External Audit


Unit 6: Internal and External Audit

Internal audit is not only related to checking of financial records but also review and critical evaluation of all other managerial functions which have a bearing on company’s objectives.

As per Companies (Auditor’s Report) Order, 2003, in case of some specific companies, the statutory auditor is required to report whether the internal audit system of the company is commensurate with the size and nature of business of the company.

Internal audit is concerned with ensuring effective and efficient system of accounting control, standard cost control, budgetary control and other functional control.

It is said that the internal audit functions as an eye of the management.

Internal audit is basically a review function.

On the basis of such review, the internal auditor should in his report, highlight the weaknesses observed and give suggestions for improvement.

In spite of the various dissimilarities between external auditor and internal auditor, there are ample scope of a gainful cooperation and coordination between them to achieve objectives of auditing.

Internal check is an important process of internal control system through which it is ensure that the job performed by one employee gets checked, automatically by another employee.

Their role is to give an opinion of the financials statements reflection of the status and operations of the company being audited.

Based on what they witness during the audit they will also produce, for management and board utilization, a management letter.

Although a financial statement audit is the most common type of external audit, external auditors may also conduct special purpose audits which might include; performing specific tests and procedures and reporting on the results, a less intensive review, and compilations.

Corporate Governance: It refers to the distribution of rights and responsibilities among different participants in a corporate entity such as shareholders, management, and lenders/creditors.

External Audit: It is an audit conducted by an individual or firm that is independent of the company being audited.

These independent auditors audit the books of a company generally once per year after the completion of the company's fiscal year.

Internal Audit: An examination of managerial control system carried out by the employee of the organization or outside audit firm specially appointed for the purpose by the organization.

Internal Auditors: These are those persons who provide independent assurance that an organisation's risk management, governance and internal control processes are operating effectively.

Internal Check: An arrangement through which the task of one employee automatically checked by another employee.

Operational Audit: A review of how an organization's management and its operating procedures are functioning with respect to their effectiveness and efficiency in meeting stated objectives.

Risk: The variability of actual return from the expected return associated with a given asset.

Statutory Audit: An audit which is authorized governed and made mandatory under any law.

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