Internal audit

PROPRIETY AUDIT
• The Propriety Audit means the verification of
following main aspects to find out whether:
(i) Proper recording has been done in
appropriate books of accounts.
(ii) The assets have not been misused and have
been properly safeguarded.
(iii) The business funds have been utilized
properly.
(iv) The concern is yielding the expected results

• The system of Propriety Audit is applied in
respect to Government companies, Govt.
Department because public money and public
interest are involved therein.
• Propriety Audit carry out to check, mean
whether the transactions have been done in
conformity with established rules, principles
and established standard.

COMPLIANCE AUDIT
• a comprehensive review of an organization’s
adherence to regulatory guidelines.
• The objective of a compliance audit is to
determine whether the auditee is following
prescribed laws, regulations, policies, or
procedures.
• These audits can be performed within a business
organization for internal purposes or in response
to requirements by outside groups, particularly
government.

• Benefits of Compliance Audit
1. Adherence to the established standards.
2. Improvement of internal processes and
technologies.
3. Maintenance of Certifications.
4. Adherence to governmental regulations .
5. Cost recovery.
6. Elevate fraud awareness and deter
fraudulent activity.
7. Manage contract areas of risk .

EFFICIENCY AUDIT
• Efficiency audit refers to comparing the actual
results with the desired/projected results.
• It is concerned with the utilization of the
resources in economic and most remunerative
manner to achieve the objectives of the concern.
• It comprises of studying the plans of
organization, comparing actual performance with
plans and investigating the reasons for variances
to take remedial action.

OBJECTIVES :
• The level of efficiency achieved by an
organization or operation in relation to
reasonable standards;
• The adequacy and reliability of systems or
procedures used to measure and report
efficiency;
• an organization’s efforts to explore and exploit
opportunities to improve efficiency; and
• whether the management processes and
information systems, operational systems, and
practices of an organization help to achieve
efficiency

INTERNAL AUDITING
Internal Auditing is an independent, objective
assurance and consulting activity designed to
add value and improve an organization’s
operations. It helps an organization accomplish its
objectives by bringing a systematic, disciplined
approach to evaluate and improve the
effectiveness of risk management, control, and
governance processes.[IIA]

Internal Audit
• a tool of control to measure and evaluate the
effectiveness of the working of an organization
primarily with accounting, financial and
operational matters.
• Internal Audit is performed by professionals with
an in-depth understanding of the business
culture, systems, and processes. Internal audit
activity provides assurance that internal controls
in place are adequate to mitigate the risks,
governance processes are effective and efficient,
and organizational goals and objectives are met.

NATURE OF INTERNAL AUDIT
• 1. A Management tool
• 2. A continuous Exercise
• 3. A Control System
• 4. A Risk Management Tool

CONTENTS(OPERATIONS)
1. Reliability and Integrity of Financial and
Operating Information
2. Economical and Efficient Use of Resources
3. Compliance with Laws, Policies, Plans,
Procedures, and Regulations
4. Accomplishment of Established Goals for
Operations
5. Safeguarding of Assets

INTERNAL AUDIT PROCESS: STEP WISE
APPROACH
1. Establish and communicate the scope and objectives for the audit to
appropriate management.
2. Develop an understanding of the business area under review. This
includes objectives , measurements and key transaction types. This
involves review of documents and interviews. Flow charts and
narratives may be created if necessary.
3. Describe the key risks facing the business activities within the scope of the
audit.
4. Identify control procedures used to ensure each key risk and
transaction type is properly controlled and monitored.
5. Develop and execute a risk-based sampling and testing approach to
determine whether the most important controls are operating as
intended.
6. Report problems identified and negotiate action plans with management
to address the problems.
7. Follow-up on reported findings at appropriate intervals. Internal audit
departments maintain a follow-up database for this purpose.

As a important tool of management
1. It ensures compliance of Companies (Auditors Report) Order, 2003.
2. Internal Auditing is a specialized service to look into the standards of
efficiency of business operation.
3. Internal Auditing can evaluate various problems independently in terms
of overall management control and suggest improvement.
4. Internal Audit system makes sure the internal control s ystem
including accounting control system in an organization is effective.
5. Internal Audit ensures the adequacy, reliability and accuracy of financial
and operational data by conducting appraisal and review from an
independent angle.
6. Internal Audit is an integral part of “Management by System”.
7. It ensures compliance of accounting procedures and accounting policies.
8. Internal Auditor can be of valuable assistance to management in acquiring
new business , in promoting new products and in launching new projects
for expansion or diversification of business.

FUNCTIONS AND RESPONSIBILITIES
OF INTERNAL AUDITORS
Major roles and responsibilities of internal auditor are
summarized below
1. To work with board and management to ensure that a
system is in place which ensures that all major risks are
identified and analyzed.
2. Evaluate and provide reasonable assurance that risk
management, control, and governance systems are
functioning as intended and will enable the organization's
objectives and goals to be met.
3. Evaluation of information security and associated risk
exposures .
4. Evaluation of the organization's readiness in case of
business interruption.

5. Evaluation of regulatory compliance program with
consultation from legal counsel.
6. Maintain open communication with management and
the audit committee. To report to both the audit
committee and management on the policies,
programmed and activities of the department.
7. Provide support to the company’s anti-fraud programs.
8. To coordinate coverage with the external auditors and
ensure that each party is not only aware of the
other’s work but also well briefed on areas of
concern.
9. To make recommendations on the systems and
procedures.
10. To review and report on the accuracy, timeliness and
relevance of the financial and other information that is
provided for management.

DIFFERENCE BETWEEN INTERNAL
AUDIT AND STATUTORY AUDIT
1. Appointment: Internal Auditor is appointed by the management of the organization while the
statutory auditor is appointed by owners i.e. shareholder for a company. First statutory
auditors of a company are appointed by the board of directors.
2. Qualification: prescribed in the Companies Act, 1956. In case of a company, a practicing
chartered Accountants or a firm of practicing chartered Accountants can only be appointed
as a statutory auditor. No fixed qualifications for the position of an internal auditor.
3. Objects: statutory audit is to form an opinion on the financial statement of the organization.
The main object of the internal audit is to detect and prevent the errors and frauds.
4. Scope : The scope of the statutory audit is fixed by the Companies Act, 1956. It cannot be
changed by mutual consent between the auditor and the management of the audited
business unit. The scope of the internal audit is fixed by the mutual consent of the auditor
and the management of the unit under audit.
5. Report : The statutory auditor submits his report to the shareholder of the company in its
general meeting. The internal auditor submits his report to the management of the company
who is also his appointing authority.
6. Removal : The procedure of removal of the statutory auditor is very complex. Only the
company in the general meeting can remove the auditor. It also has to take the permission of
the central government. The management of the entity can early remove internal auditor. No
permission of Central Government is require.

Internal audit

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Internal audit