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Audit Notes-ToPIC 7

Audit Notes-ToPIC 7

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Published by Tusiime Samson
TOPIC 7: INTERNAL AUDIT, COMPUTER AUDITING AND OTHER TYPES OF AUDIT INTERNAL AUDIT – ISA 610 7.1.1 Nature and Function/scope of Internal audit According to the Institute of internal auditors (www.iia.org.uk) internal audit is defined as :

An appraisal or monitoring activity established by management and the directors, for the review of the accounting and internal control systems as a service to the entity. It functions by, amongst other things, examining, evaluating and reporting to management
TOPIC 7: INTERNAL AUDIT, COMPUTER AUDITING AND OTHER TYPES OF AUDIT INTERNAL AUDIT – ISA 610 7.1.1 Nature and Function/scope of Internal audit According to the Institute of internal auditors (www.iia.org.uk) internal audit is defined as :

An appraisal or monitoring activity established by management and the directors, for the review of the accounting and internal control systems as a service to the entity. It functions by, amongst other things, examining, evaluating and reporting to management

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Published by: Tusiime Samson on Aug 11, 2011
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TOPIC 7: INTERNAL AUDIT, COMPUTER AUDITING AND OTHER TYPES OFAUDIT
INTERNAL AUDIT – ISA 6107.1.1 Nature and Function/scope of Internal auditAccording to the
 Institute of internal auditors
 (
 
) internal audit is defined as :
 
An appraisal or monitoring activity established by management and thedirectors, for the review of the accounting and internal control systems as aservice to the entity.It functions by, amongst other things, examining, evaluating and reporting tomanagement and the directors on the adequacy and effectiveness of componentsof the accounting and internal control systems.
7.1.2 Scope/ Objectives / Functions of internal Audit
 The scope of Internal audit is set by management and varies widely. It couldinclude:I.Reviewing and appraising the soundness, adequacy and application of accounting, operating and internal control systems. It is the responsibility of management to establish adequate accounting and internal control systems. This demands proper attention on a continuous basis. Internal auditing isordinarily assigned specific responsibility by management for reviewingthese systems, monitoring their operation and recommending improvementsthereto.I.Examination of financial and operating information. This may includereview of the means used to identify, measure, classify and report suchinformation and specific inquiry into individual items including detailedtesting of transactions, balances and procedures.I.Ascertaining the extent to which the company assets are accounted forand safeguarded from losses of all kinds.I.Reviewing and ascertaining the extent of compliance with establishedinternal policies, plans and procedures as well as with laws, regulations andother external requirements.I.Ascertaining the reliability of accounting and other data developedwithin the organization.
I.
Reviewing of the 3Es - economy, efficiency and effectiveness of operations of the company. Also known as value-for-money Audit”
(Economy operations at lowest reasonable cost ie the measure of resources consumed against planned consumption, Efficiency – Relationshipbetween input resources and output ie the ratio of resource consumption tobenefits produced-the input:output ratio, Effectiveness achievement of  predetermined objectives –ie the measure of actual performance against  planned performance –in terms of outputs)
 
I.
Appraising the quality of performance in carrying out assignedresponsibilities (Quality assurance – appraisal of lecturers etc )I.Carry out special investigations, e.g. fraud
7.1.3 Distinction Between External & Internal Auditors7.1.3.1 Common interests of the two auditors
:
Ensuring
aThe organization has an effective system of internal control.aThat management obtains adequate management information.aThat assets are safeguarded.aThat the organization has an adequate accounting system (to minimumCompanies Act standard).aCompliance with statutory and regulatory framework.
7.1.3.2 Differences between the two auditors:
a
Scope
Scope of external auditor is determined by statute; internalauditor’s scope is set by management and specified in an
internal audit charter 
.
The Internal audit charter is a formal document approved by theBoard of directors, that (a) establishes the internal audit department’s position within the organization; (b) authorizes the internal auditor to haveunlimited access to records, personnel and physical properties relevant to the performance of audits; and (c) defines the scope of internal auditing activities.
a
Approach and primary objective
– External auditor’s primary objectiveis the formation of an opinion as to the truth and fairness of the accounts. Theinternal audit’s objective is set by the charter and may cover “EEE”.
a
Relationship to the company
– External auditors are independent of the company and its management. Internal auditors are often employees of the organization, although some times the internal audit function isoutsourced.

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