Internal audit is a continuous review of operations and records undertakes within the business and is normally done by specially assigned staff. It should operate independently of all the internal check and in no case should divest any one of the responsibilities placed upon him. Internal auditing is an independent appraisal activity within an organization for the review of operations as a service to management. It is managerial control which functions by measuring and evaluating the effectiveness of other controls.
★ Reliability and integrity of the information.
★ Compliance with the policies, plans, procedures, laws and regulations.
★ Safeguarding of assets.
★ Economical and efficient use of resources.
★ Accomplishment of established objectives and goals for operations or programs.
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.
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 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.
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 transfer 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.
Significance of Internal Auditing:
Internal auditing refers to an assessment activity managed within a corporation as a check to the entity. Its main function is to monitor control within the corporation. The task of internal auditing is determined by organization itself, and its goals differ from those of the external auditor who is appointed to report independently. The depth and goals of internal auditing vary widely and depend on the volume and structure of the body and the requirements of its administration. Ordinarily, the importance of internal auditing can be seen by one or more of the following:
1) Implementing and monitoring of sufficient internal control. That is the duty of management that demands proper attention on a permanent basis. Internal auditors are ordinarily assigned definite task by management for reviewing controls, monitoring their function and suggesting improvements for them.
2) Inspection of monetary and operational information. This may include review of the means used to recognize, determine, categorize and report such information and definite inquiry into individual items as well as in depth testing of balances, transactions and procedures.
3) Review of the economy, effectiveness and efficiency of operations including non-financial controls of the corporation.
4) Review of fulfillment of laws, regulations and other external requirements and compliance with administration policies and commands.
★ Make sure the authority of the audit team is established - this will increase the cooperation from audites.
★ Decide what areas of the company will be audited and the frequency of the audits. Prepare a yearly audit schedule and distribute.
★ Develop an audit plan. Decide what other audit resources are needed - checklists, other auditors?
★ Determine the purpose of the audit - is it to comply with government regulations, quality standards, internal procedures and systems? v Define the scope of the audit - is it an overview of the area being audited or is it to concentrate on a specific system within the area?
★ Hold a meeting with the auditors to discuss the plan, purpose, and scope of the audit.
★ Read the documents you will be auditing against. Know what they say. Develop questions to ask the auditors.
★ Conduct an opening meeting with the audites.
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.
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 modern approach permits one audit of an audit-able entity with one comprehensive report.One additional benefit is that this approach assists in staff development and retention. This publication address the four basics phases of a modern integrated audit approach:
This enclosed work program addressing each of these phases in standard work paper format using MS Word to facilitation modification to each Audit Department? Standards and to complete each audit efficiently.
The work program contains over 50 steps required to complete an audit using this approach.
Internal audit nothing but the checking the product that you produced.
External audit is checking your product by your customer.
Here it means 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.