Page 109 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes 6.9 Summary

 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.

6.10 Keywords

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.

104 LOVELY PROFESSIONAL UNIVERSITY