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Advanced Auditing

Notes external auditors due to the nature of the function. Techniques used by internal auditors are
similar to those used by external auditors. There are usually no statutory requirements in
relation to internal audit. Internal audit is a relatively new profession and there is an expectation
gap i.e. the difference between what the public perceives and what the profession perceives to be
the role of the internal auditor.
The main objective of Internal audit is to detect the mistake and errors committed during the
assessment work, TROs and Administrative Officers/Superintendents, so that a suitable/
appropriate remedial action is taken to retrieve the loss caused to the revenue not to allow relief
to the assessee in case of overcharge/over assessment. The other objective of internal audit is to
find out whether the procedure and laws laid down are properly followed or not and whether
there is any violation of CBDT Guidelines, Instructions and Circulars. Ultimate aim is to improve
quality of assessments by reducing the errors and omissions which are subsequently detected
by receipt audit.

6.1 Meaning of Internal Audit

Internal audit is defined as an appraisal or monitoring activity established within an entity as a
service to the entity. It functions by, amongst other things, examining, evaluating and reporting
to the management and the directors on the adequacy and effectiveness of the components of the
Accounting and Internal Control Systems.

The Institute of Internal Auditors, USA, defines Internal Audit as an independent appraisal
activity within an organization for the review of accounting, financial and other operations as a
service to management. Internal audit is generally a feature of large companies. It is a function
which is provided either by employees of the entity or sourced from outside the entity.
The Institute of Internal Auditors (IIA) defines internal audit as follows:
“Internal Audit is an independent, objective assurance and consulting activity designed to add
value and improve an organization’s operations. It helps an organization accomplish its objectives
by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk
management, control and governance processes.”
The above definition leads us towards the following elements:

1. Internal audit is an independent activity.
2. It provides assurance and consulting services.
3. It helps the organization to achieve its objectives.
4. It enhances the effectiveness of processes related to internal control and risk management.
5. It is a systematic and disciplined approach.

From the figure 6.1, it is clear that internal audit is basically an evaluation and reporting function
of financial and operational areas. Now-a-day, management puts a lot of reliance on the report
and suggestions made by the internal auditors. It is relevant to mention here that internal audit
works as a part of the management. It provides assurance to the Board of Directors and Audit
Committee that:
 The existing system of controls is commensurate with the size and nature of the company.
 The existing system of controls is cost effective.

 Financial and operating information systems are reliable and accurate.
 Company is complying with all applicable policies, procedures, laws and regulations.

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