Auditing Internal Audit – tryspring

By | May 26, 2019

Auditing – Internal Audit

In this chapter, we will understand the concept of Internal Audit
in Auditing. A team of experts reviews the procedures and
operations of an organization and reports it to the management in
cases such as non-compliance, lack of control and inefficiency,
especially in big organizations where thousands of employees work
and the business operations take place from various locations.
The internal audit team not only requires expertise in accounting
but also in organizational behavior and functional areas of
management.

Statutory Requirement

As per Section 138 of the Companies Act, 2013 −

  • Such class or classes of company as may be prescribed shall
    be required to appoint an internal Auditor, who shall either
    be a Chartered Accountant or Cost Accountant or such other
    professional as may be decided by the Board to conduct
    internal audit of the functions and activities of the
    company.

  • The Central Government may, by rules, prescribe the manner
    and intervals in which the internal audit shall be conducted
    and reported to the Board.

Scope of Internal Audit

Following is the scope of Internal Audit according to the
Institute of Internal Auditors −

  • Safeguarding the assets.

  • Economical and efficient use of resources.

  • Reliability and integrity of information.

  • Accomplishment of established objectives and goals for
    operations or programs.

Objectives of Internal Audit

Following are the main objectives of internal audit −

  • To comment about effectiveness of internal control system in
    force.

  • To give suggestions about improvement of internal control
    system in organization.

  • To check and ensure whether policies and procedure as laid
    down by the top management are being followed or not.

  • Whether assets of organization are properly accounted for and
    safeguarded.

  • To ensure whether standard accounting practices are followed
    by the organization.

  • Earlier detection and prevention of errors and frauds.

  • To ensure correctness, accuracy and authenticity of financial
    accounting.

  • To do investigation at the special request of the management.

  • To check whether liabilities of organization are valid and
    legitimate.

Internal Check and Internal Audit

Although Internal Check and Internal Audit are a part of the
whole system of internal control yet there is a lot of difference
between Internal Check and Internal Control −

Internal Check V/S Internal Audit

Basis Internal Check Internal Audit
Meaning It is an arrangement of the duties of staff members in such a
manner that work performed by one person is automatically and
independently checked by the other
Internal Audit is a review of various operations and records
of the company by staff specially appointed for this purpose.
Object To prevent and minimize the possibilities of errors, frauds
or irregularities.
To detect errors and frauds which have already been
committed.
Timing Internal Check works during the course of transactions. Internal Audit begins after the completion of accounting
process of different transactions.
Scope Scope of Internal Check is very limited. Scope of Internal Audit is very broad.
Staff The arrangement of the duties is done with the existing
staff, no new member of staff is required for Internal Check.
Separate staff is required to do internal audit.
Nature Internal Check checks the progress of work automatically. Internal Auditor reports to the management and suggest
improvement about various inefficiencies.
Involvement A large number of employees are involved in the Internal
Check system.
For implementation of Internal Audit, a small team with
limited members can also perform the audit.
Device Internal Check acts like a device and keeps check on the
work.
Internal Audit is a device for checking the work.

External Audit and Internal Audit

The following are the differences between Internal Audit and
External Audit −

External vs. Internal Audit

Basis External Audit Internal Audit
Appointment Appointment of External Auditor is compulsory by the law; he
is appointed either by the Shareholder or by the Government.
Appointment of Internal Auditor is optional and he is
appointed by the management.
Status External Auditor is an independent person. Internal Auditor is a paid employee of the company.
Scope Scope of work of External Auditor is laid down by the laws. Scope of work and rights, duties and responsibilities of
Internal Audit is laid down by the management.
Object Assurance about whether the financial statements are
presented fairly in all material respects and according to
applicable financial reporting framework or not.
Object of Internal Audit is to serve the need of the
management and to prevent errors, fraud and irregularities.
Remuneration Remuneration is fixed by the shareholders of the company. Remuneration is fixed by the management of the company.
Duration External Audit starts after the preparation of final
accounts.
Internal Audit is carried out throughout the year.
Reporting Report is submitted to the shareholders of the company. Report of Internal Audit is submitted to the management.
Shareholder Meeting External Auditor has a legal right to attend shareholders
meeting.
Internal Auditor doesn’t have the right to attend the
shareholders meeting.
Audit Procedure Mostly External Auditor does text checking. Internal Auditor mostly does detailed checking and
examination of books of accounts and records.
Qualification External Auditor must have the required professional
qualification as laid down by the law.
Professional qualification is not compulsory for an Internal
Auditor.

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