Essentials of Internal Audit
1. Planning
Planning is an essential feature of internal audit. The auditor can plan to check the accounts system. The plan may relate to accounting functions like purchase, sales, income, expenses and shares. The planning includes degree of risk and extent of audit. It also states the nature of audit work.
2. Controlling
Controlling is an essential feature of internal audit. The auditor examine the operation of accounting system. He can control audit work through audit programme. The whole work is distributed among audit staff.
3. Recording
Recording is an essential feature of internal audit. The auditor can record the facts and figures in order to express his views in the business activities. The auditor notebook and audit working papers are used to record the information.
4. Independence
Independence is essential element of internal audit. An employee of the company does the work of internal audit. Management must not influence him. He must be free in developing audit programme, audit investigation and audit reporting.
5. Staffing
Staffing is an essential part of internal audit. The trained staff is needed to conduct internal audit. The reasonable number of persons can perform the work of examination. The inadequate and untrained staff cannot serve the purpose of checking efficiency of managers.
6. Training
The internal audit staff must be trained. In order to achieve better results there is a need of training in audit work. Proper arrangements should be made to provide training to internal audit staff.
7. Relationship
The internal audit staff must have friendly relations with management, external audit staff and consultants. There is a need of complete harmony among various groups of people.
8. Evidence
Evidence is essential part of internal audit. The evidence must be reliable, relevant and sufficient. The business documents are sources of entries in accounting books and records. The reliable can be seen through signature of manager. The relevant documents show the name of concern.
9. Due Care
Due care is an essential part of internal audit. The auditor must use skill, care and judgement. He should have technical knowledge, honesty and integrity.
10. Reporting
Reporting is an essential part of internal audit. The auditor can inform the management through audit report. It may be long or short report. The finding of the auditor is put before the management. There is a need to act upon the advice of the internal auditor for better result.
Functions of Internal Audit
The function of internal audit is concerned with analysis of internal check. The internal auditor can look in to the duties of each employee. All employees are provided jobs on the basis of their abilities.
2. Application of legal Requirements
The function of internal audit is the examining of the application of legal requirements. The accounts are prepared under certain legal framework. The Company's Ordinance 1984, the Stock Exchange and Security Rules 1971, the Banking Companies Ordinance 1962, The Insurance Act 1938. The Modaraba Ordinance 1980 and similar other laws are followed for preparing finance statement.
3. Verification of Accuracy
Verification of accuracy is a function of internal audit. The accuracy of accounting books and records can be verified with the help of auditing techniques. The audit techniques include inspection, observation, inquiry, confirmation, computation and review. An auditor can check the accuracy through these techniques.
4. Confirmation of Liability
Confirmation of liability is a function of internal audit. The internal auditor can determine the work done by every person. The careless or negligence on the part of worker is noted. The concerned person is given a chance to explain his position. If the reason is not justified, the liability is confirmed.
5. Examination of Assets Protection
The function of internal audit is to examine the assets protection. The proper record is to be maintained. The possession must be in the hands of senior officer. The assets are used for business only. There is proper purchase and disposal of these assets. The internal auditor can check that assets are protected.
6. Detection of Fraud
Detection of fraud is a function of internal audit. The work of accounting and auditing go side by side. When accounting work is over it is checking by audit staff. There is not time gap so fraud is detection at an early date. The plan of fraud requires time to think. When time is not allowed it is detected on the spot.
7. Ascertain Proper Authority
The function of internal audit is to ascertain the proper authority. The shareholders, partners and single owners have full authority. They can delegate such authority to managers. The signature of owners or managers must be noted on every voucher in order to ascertain that transaction is proper.
8. Detection of Errors
The function of internal audit is to detect errors in the accounting records. The audit staff can check the records in detail. There is not time limit. There is possibility of disclosed of error due to cent percent checking. The corrections can be made as early as possible to reflect the true and fair view.
9. Make Investigation
The function of internal audit is to make investigation. It is an inquiry in to business activities by specially assigned staff. The facts and figures are collected; analyzed and true position is put before the management. The grey area can be spot lighted by an auditor in the interest of business.
10. Performance Appraisal
The function of internal audit is to note the performance of business employees and management. The standard are fixed and performance is compared with standards. The management can feel satisfaction if the performance is at standard.
11. Give Suggestion
The function of internal audit is to give suggestion for business problems. These suggestions are not costly. In the long run there may be large number of benefits from such ideas. The management has the right to accept or reject the ideas.
12. Reporting
Reporting is a function of internal audit. The auditor can find out the weaknesses of various functions. The report is submitted to the management. There is a need to go through the report. The weakness and proposal can be examined in detail.
1. Planning
Planning is an essential feature of internal audit. The auditor can plan to check the accounts system. The plan may relate to accounting functions like purchase, sales, income, expenses and shares. The planning includes degree of risk and extent of audit. It also states the nature of audit work.
2. Controlling
Controlling is an essential feature of internal audit. The auditor examine the operation of accounting system. He can control audit work through audit programme. The whole work is distributed among audit staff.
3. Recording
Recording is an essential feature of internal audit. The auditor can record the facts and figures in order to express his views in the business activities. The auditor notebook and audit working papers are used to record the information.
4. Independence
Independence is essential element of internal audit. An employee of the company does the work of internal audit. Management must not influence him. He must be free in developing audit programme, audit investigation and audit reporting.
5. Staffing
Staffing is an essential part of internal audit. The trained staff is needed to conduct internal audit. The reasonable number of persons can perform the work of examination. The inadequate and untrained staff cannot serve the purpose of checking efficiency of managers.
6. Training
The internal audit staff must be trained. In order to achieve better results there is a need of training in audit work. Proper arrangements should be made to provide training to internal audit staff.
7. Relationship
The internal audit staff must have friendly relations with management, external audit staff and consultants. There is a need of complete harmony among various groups of people.
8. Evidence
Evidence is essential part of internal audit. The evidence must be reliable, relevant and sufficient. The business documents are sources of entries in accounting books and records. The reliable can be seen through signature of manager. The relevant documents show the name of concern.
9. Due Care
Due care is an essential part of internal audit. The auditor must use skill, care and judgement. He should have technical knowledge, honesty and integrity.
10. Reporting
Reporting is an essential part of internal audit. The auditor can inform the management through audit report. It may be long or short report. The finding of the auditor is put before the management. There is a need to act upon the advice of the internal auditor for better result.
Functions of Internal Audit
The function of internal audit is concerned with analysis of internal check. The internal auditor can look in to the duties of each employee. All employees are provided jobs on the basis of their abilities.
2. Application of legal Requirements
The function of internal audit is the examining of the application of legal requirements. The accounts are prepared under certain legal framework. The Company's Ordinance 1984, the Stock Exchange and Security Rules 1971, the Banking Companies Ordinance 1962, The Insurance Act 1938. The Modaraba Ordinance 1980 and similar other laws are followed for preparing finance statement.
3. Verification of Accuracy
Verification of accuracy is a function of internal audit. The accuracy of accounting books and records can be verified with the help of auditing techniques. The audit techniques include inspection, observation, inquiry, confirmation, computation and review. An auditor can check the accuracy through these techniques.
4. Confirmation of Liability
Confirmation of liability is a function of internal audit. The internal auditor can determine the work done by every person. The careless or negligence on the part of worker is noted. The concerned person is given a chance to explain his position. If the reason is not justified, the liability is confirmed.
5. Examination of Assets Protection
The function of internal audit is to examine the assets protection. The proper record is to be maintained. The possession must be in the hands of senior officer. The assets are used for business only. There is proper purchase and disposal of these assets. The internal auditor can check that assets are protected.
6. Detection of Fraud
Detection of fraud is a function of internal audit. The work of accounting and auditing go side by side. When accounting work is over it is checking by audit staff. There is not time gap so fraud is detection at an early date. The plan of fraud requires time to think. When time is not allowed it is detected on the spot.
7. Ascertain Proper Authority
The function of internal audit is to ascertain the proper authority. The shareholders, partners and single owners have full authority. They can delegate such authority to managers. The signature of owners or managers must be noted on every voucher in order to ascertain that transaction is proper.
8. Detection of Errors
The function of internal audit is to detect errors in the accounting records. The audit staff can check the records in detail. There is not time limit. There is possibility of disclosed of error due to cent percent checking. The corrections can be made as early as possible to reflect the true and fair view.
9. Make Investigation
The function of internal audit is to make investigation. It is an inquiry in to business activities by specially assigned staff. The facts and figures are collected; analyzed and true position is put before the management. The grey area can be spot lighted by an auditor in the interest of business.
10. Performance Appraisal
The function of internal audit is to note the performance of business employees and management. The standard are fixed and performance is compared with standards. The management can feel satisfaction if the performance is at standard.
11. Give Suggestion
The function of internal audit is to give suggestion for business problems. These suggestions are not costly. In the long run there may be large number of benefits from such ideas. The management has the right to accept or reject the ideas.
12. Reporting
Reporting is a function of internal audit. The auditor can find out the weaknesses of various functions. The report is submitted to the management. There is a need to go through the report. The weakness and proposal can be examined in detail.