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Advanced Auditing

Notes

Notes The Central Board of Direct Taxes, New Delhi has now introduced the new internal
audit set up, procedure for working and dealing with the internal audit objections,
responsibilities of the officers and staff and procedure for settlement of internal audit
objections with special reference to different views expressed by the courts.

The following excerpts from the internal audit manual of a public undertaking may help you to
understand how a typical organization perceives the role of its internal audit department:

 The management of every corporate body has the direct responsibility for the maintenance
of an adequate and effective system of accounts for the proper recording of all transactions
in the books of accounts and for safeguarding the assets of the concern. In addition to this
responsibility, the management of a public undertaking has a moral responsibility to the
community at large which demands that the assets of the concern be properly maintained,
augmented and utilized in a manner that contributes to the general welfare of the country.
 Internal audit helps the management in the discharge of this responsibility. It is said that
the internal audit functions as an eye of the management.
 Internal audit has to ensure that the accounts are maintained correctly by the accounts
department. Also that the rules, regulations and orders having financial bearing and
issued by the competent authorities are observed by all departments. For this purpose,
internal audit scrutinizes all transactions accounted for in the books with reference to the
initial documents like purchase orders, receipts, vouchers, issue vouchers, cash vouchers,
pay rolls, muster rolls, adjustment memos, sale invoices, journal entries etc and checks the
books of accounts like journals, ledgers and final accounts including the schedules.

 Another important function is to review all transactions from the angle of financial
proprietary and to suggest correct methods of executive action and ways and means for
effecting economy and for safeguarding against fraud, misappropriation or other losses
with the emphasis upon prevention. Where irregularities are deducted, internal audit
should see that they are promptly reported to the higher authorities for necessary action.

 In striving to make the accounting department more efficient in attaining its basic
management objectives, internal audit has the responsibility of appraising the efficiency
of both the accounting procedures and the actual performance of the staff. Internal audit
has also to ensure that the subsidiary accounts and other relevant records maintained in
other departments like hostel, canteen, hospital, schools, outstation offices, etc. are
scrutinized at suitable intervals.

 Internal audit will undertake special investigations and reviews as may be required from
time to time and on the instructions of the Chief Finance Officer.

 Internal audit is entrusted with the responsibilities of conducting physical verification of
stores, raw materials, finished products and movable assets as lying under the control of
the stores/executive officers, as the case may be.
 Internal audit should also check the accuracy of the monthly journal entries prepared by
the various sections before these are passed on the central accounts section for incorporation
in the main and sub-ledgers.

 Internal audit has also the duty of constantly examining and improving upon the system
of internal check currently followed.

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