INTERNAL AUDIT – Introduction of Internal Audit, Meaning of Internal Audit, Definition of Internal Audit, Objectives of Internal Audit

Auditing

INTERNAL AUDIT

Introduction

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. Internal auditing is a catalyst for improving an organization’s governance, risk management and management controls by providing insight and recommendations based on analysis and assessments of data and business processes with commitment to integrity and accountability. Internal auditing provides value to governing bodies and senior management as an objective source of independent advice. The auditor’s appointed to perform the internal audit activity are called as Internal auditor’s.

Meaning

It is an audit conducted on a continuous basis by the employees of the organization appointed specially for this purpose, to review the operations and to offer suggestions to improve the efficiency. Audit which is conducted internally, i.e., within the organisation on behalf of the management is called as Internal Audit. The person who conducts such an audit is called as Internal Auditor.

Internal auditor need not be a Chartered Accountant and need not possess the qualifications prescribed by the Companies Act. The appointment, scope of work, remuneration etc. of an internal auditor are determined by the management. The internal auditor works as a part of the employee and is remunerated in the form of salary by the management. Internal auditor works on a continuous basis verifies the transactions that takes place in a company and after examination submits a report to the management called as Internal Audit Report.

Definition

• According to Watter B. Meigs “Internal auditing consists of a continuous critical review of financial and operating activities by a staff of auditor’s function as full-time salaried employees”

• According to The Institute of Internal Auditor’s, USA, “Internal auditing 34 is an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization. It is a type of control which functions by measuring and evaluating the effectiveness of other types of control”

Objectives of Internal Audit

The objectives of Internal Audit or the duties of an Internal auditor are as follows:

1. Verify the Accuracy of Accounts:

The primary aim of internal audit is to verify the correctness and accuracy of the financial records and accounts that are being presented to the management.

2. Detection of Errors and Frauds:

Internal auditor has to adopt suitable techniques and measures to detect errors and frauds, which are likely to be committed in the organization. Verifying the Company Assets Reviewing the System of Internal Check and Control and should verify that proper measures are taken to protect or maintain the assets. He should also verify that assets are purchased or sold or replaced only with the approval of an authorized person.

3. Review the Internal Check and Control System:

The auditor has to review and comment on the effective function of the internal check and internal control system within the organization. Any deviation in the function of the system should be reported to the management and the auditor should initiate suitable recommendations.

4. Verify the Assets of the Company:

Internal auditor should verify the and existence of the assets in the company should verify that proper measures are taken to protect or maintain the assets. He should also verify that assets are purchased or sold or replaced only with the approval of an authorized person.

5. Verify the Liabilities:

The internal auditor has to verify that the liabilities incurred by the organization are legitimate and they are likely to be incurred for the organizational activities.

6. Adherence to Accounting Standards:

Internal auditor has to ensure that the Accounting Standard practices are followed by the organization are strictly adhered.

7. Review the Managerial Functions:

Internal auditor has to review the managerial functions of an organization and has to report on them to the management.

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