INTERNAL AUDIT – Scope (or) Functions of Internal Auditor, Advantages of Internal Audit, Disadvantages of Internal Audit

Scope (or) Functions of Internal Auditor

1. Evaluating of Accounting and Administrative Control:

Internal auditing ensures effective and efficient system of accounting control, standard costing, budgetary control and all other administrative controls.

2. Protection of Assets:

Internal auditing besides ensuring proper accounting and custody of companies asset’s it is concerned with the protection of the assets. It reports to the management about the utilization of the asset and the adequacy of return from the investment.

3. Compliance with Established Policies and Procedures:

Internal auditing is concerned with reporting to the management about the compliance of the predetermined policies, procedures and standards of performance.

4. Reliability and Validity of Reports:

Internal auditing ascertains the reliability of financial and operating reports prepared throughout the enterprise. It also provides assurance to the management of the validity of the reports and records. Internal auditing brings to light the inadequacies in the check and control system in operation to the management. Further, it provides advisory services to the management for the improvement of the system.

Advantages of Internal Audit

The advantages of conducting an Internal audit are as follows:

1. Detection of Errors and Frauds:

Internal audit is a continuous and critical examination of books of accounts and records of the organization; hence errors and frauds can be easily detected and prevented.

2. Quick Presentation of Accounts and Reports:

Transactions and postings in the books of accounts reviewed on a regular basis, which facilitates quick presentation of accounts and reports to the management. It also enables the external auditor to finalize the accounts quickly as the external auditor relies on the report submitted by the internal auditor.

3. Advisory Services to Management:

Internal auditor who possess in depth knowledge of the business organization provides advisory services to the management like introduction of new product, improving the system of internal check and control to operations, etc.

4. Proper Co-ordination and Control:

Internal audit coordinates the various operational or functional areas of business. It is the duty of the internal auditor to appraise and evaluate the efficiencies of the various control systems established in the organization. Hence, internal audit enables proper control and coordination in the organization.

Disadvantages of Internal Audit

The following are the limitations or disadvantages of Internal Audit:

1. High Cost:

The cost of establishing and operating an internal audit in an organization is very expensive.

2. Unsuitable for Small Organization:

Internal audit due to involvement of high cost is not suitable for small organizations.

3. Unreliable Opinion:

Internal auditor’s are employees of the organization and hence the report given by them may not be true and fair. Often, external auditor has reservations about the opinions expressed by the internal auditor.

4. Ineffectiveness:

When the records of operations are not checked immediately after they are completed or when there is time lag between two audits, internal audit may become ineffective.

5. Lack of Expertise:

Internal audit staff lacks the required skill and expertise as they are not professionally qualified chartered accountant.

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