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A PROJECT ON

HOW INTERNAL AUDIT CAN CONTROL COST

IN THE SUBJECT

ADVANCED COST ACCOUNTNG

SUBMITTED BY

NAME: Kautilya Patel

ROLL NO.:

DIVISIONS: E

MBA

TO

YEAR: 2018-19

4 PRINCIPLES OF INTERNAL AUDIT 10 2.2 METHODS OF COST CONTROL 31 CHAPTER V – CONCLUSIONS & SUGGESTIONS . CHAPTER-1 INTRODUCTION 1.Sr.3 OBJECTIVE OF INTERNAL AUDIT 9 2.1 MISSION OF INTERNAL AUDIT 8 2.6 1.1 COST CONTROL 30 4.2 STANDARDS RELATED TO INTERNAL AUDIT 21 4.5 AREAS OF OPERATION 11 2.1 CATEGORIES 20 3.7 ROLES OF INTERNAL AUDIT 18 3.no Particulars Page no.2 HISTORY OF INTERNAL AUDIT 8 CHAPTER-2 INTERNAL AUDIT and COST CONTROL 2.6 ESSENTIALS OF INTERNAL AUDIT 12 2.2 PURPOSE OF INERNAL AUDIT 9 2.1 MEANING AND DEFINITION 6.

collects evidence. a self assessment. system.an organization auditing its own systems. objective assurance and consulting activity designed to add value and improve an organization's operations. evaluates the same and on this basis formulates his The types of audit are:- 1. process. EXTERNAL AUDIT:.  Introduction The general definition of an audit is an evaluation of a person. Auditing is defined as a systematic and independent examination of data. internal auditing and government auditing. project or product. INTERNAL AUDIT is an independent. but similar concepts also exist in . quality management.records.project management. INTERNAL AUDIT:. 2.independent of the organisation. water management and energy conservation. statements. It helps an organization accomplish its objectives by bringing a systematic. disciplined . organization. enterprise. The term most commonly refers to audits in accounting. operations and performances (financial or otherwise) of an enterprise for a statedpurpose. In any auditing the auditor perceives and recognizes the propositions before himfor examination.

With commitment to integrity and accountability. . risk management and management controls over efficiency/effectiveness of operations (including safeguarding of assets).approach to evaluate and improve the effectiveness of risk management. Internal audit may be conducted to ascertain whether all rules. and governance processes. regulations. It includes examination and evaluation of various organizational activities and to produce the helping hand to the management complete their responsibilities efficiently and effectively. Internal audit is an audit conducted by an internal auditor appointed by the management of the enterprises with a view to highlighting the weak areas of the organizations. the reliability of financial and management reporting and compliance with laws and regulations. The internal auditor audits the accounts and other relevant records daily. Internal audit may also involve conducting proactive fraud audits to identify potentially fraudulent acts. Internal audit is a catalyst for improving an organization's governance. financial and other operation as a basis for protective and constructive service to the management. The scope of internal audit within an organization is broad and may involve topics such as an organization's governance. control. regularly or on periodical basis to accomplish Requirements of internal audit :- 1. and conducting post investigation fraud audits to identify control breakdowns and establish financial loss. The institute of internal auditor has defined internal auditing as follows: “ Internal auditing is the independent appraisal activity within an organization for the review of the accounting. participating in fraud investigations under the direction of fraud investigation professionals. Professionals called internal auditors are employed by organizations to perform the internal auditing activity. risk management and management controls by providing insight and recommendations based on analyses and assessments of data and business processes.control. internal audit provides value to governing bodies and senior management as an objective source of independent advice.

To check whether working of the organization is smooth. To highlight the weak areas of the organization and give suggestion to strengthen them. and the current philosophy. the theory of internal auditing was conceived primarily by Lawrence Sawyer (1911-2002). 2. theory and practice of modern internal auditing as defined by the International Professional Practices Framework (IPPF) of the Institute of Internal Auditors owes much to Sawyer's vision. the profession's exposure and value was enhanced. 5. To ensure that all the assets of organization are properly safeguarded.policies. efficient and economical HISTORY OF INTERNAL AUDIT:- The Internal Auditing profession evolved steadily with the progress of management science after World War II. However. the focus by internal audit departments of publicly traded companies on . 4. as many internal auditors possessed the skills required to help companies meet the requirements of the law. With the implementation in the United States of the Sarbanes-Oxley Act of 2002. It is conceptually similar in many ways to financial auditing by public accounting firms. procedures and principles have been followed by the company or not. if not. he reports the management about the drawback with suggestions. To check whether the existing internal control system is adequate and effective and according to the size of the organization. quality assurance and banking compliance activities. While some of the audit technique underlying internal auditing is derived from management consulting and public accounting professions. 3. often referred to as "the father of modern internal auditing". effective.

OBJECTIVES OF INTERNAL AUDIT:- 1. MISSION The mission of the Internal Audit is to help create the processes required for organizational success. appraisals. the IIA once again began advocating for the broader role internal auditing should play in the corporate arena. procedures. risk management. The purpose is to ascertain that the internal control system. reporting is reliable and safeguarding of assets and compliance with the laws and regulations is done. and recommendations to strengthen operations and controls PURPOSE OF INTERNAL AUDIT:- The internal audit is one of the management’s control tools who through its operations assist the entire organization by examining and evaluating the adequacy and efficiency of internal control. The internal audit furnishes the organization with analyses. To determine whether compliance exists with policies. 2. functions so that the management can be reasonably sure that the set objectives and goals will be achieved. laws and regulations.e. by taking into account also the information produced by the external auditors. evaluating the internal control systems and the integrity of financial and operating information produced by those systems).SOX related financial policy and procedures derailed progress made by the profession in the late 20th century toward Larry Sawyer's vision for internal audit. in keeping with the IPPF's philosophy. To determine the reliability and integrity of information. This is accomplished by independently and objectively evaluating the operations and internal controls within the organization and providing management with analyses. recommendations . Beginning in about 2010. . appraisals. (i. quality of operations and governance processes. the operations are effective.counsel and information.

To review the operation of the overall internal control system and to bring material departures and non-compliances to the notice of the appropriate level of management. To assist members of the organization in the effective and successful performance of their responsibilities by providing them with analyses.3. and c) economical. 5. To appraise the economy and efficiency of resource utilization (i. b) sound. 9. to locate unnecessary and weak control system effective and economical. 6. To analyze and improve the system of internal check. 7. monetary and most importantly staff). 4. To review operations or programs for consistency with established management goals and objectives. To establish that there is a proper authority for every acquisition. physical. . To confirm that liabilities have been incurred only for legitimate activities of the organization. appraisals. recommendations and other pertinent information concerning the activities being reviewed. in particular to see that it is:- a) working. 8.e. retirement and disposal of assets. To facilitate the prevention and detection of frauds. 10.

4. Clarity In Scope:. Independence:-sufficiently high status in the organization. He may be required to report directly to the board of directors. There . It should not be involved in performance of executive actions.The internal audit department’s duty is to review operations as part of the internal control system. 2.The size and qualification of staff of the internal audit department should be commensurate with the size of the business.The scope of internal audit department must be specified in a comprehensive manner. Reporting:. 3. 5. Definition Of Duties:. Objectives:. The cost of internal audit department should not exceed the benefits expected to be derived from it. have authority to investigate from the financial angle. 6. The department must at all times. PRINCIPLES OF ESTABLISHING INTERNAL AUDIT:- 1.The objectives of the internal audit function should be made very clear and unambiguous. Internal Audit Department:. every phase of organizational activity under any circumstance. The objective should be properly communicated so that internal audit is not viewed as “ over the shoulder check” by other departments.The programme of internal audit should be time-bound.

details of problems encountered and conclusions drawn.should be provisions for periodic reporting on various operational and other aspects. evidence of work performed. for future reference.The internal auditor should ensure that findings.The internal auditor should identifyand evaluate the organization's internal control system as a basis for reporting uponits adequacy and effectiveness. Follow-up and review:. Evidence:. Reporting and Follow-Up:.There should be sufficient scope for the follow-up action on the various points raised in internal audit report. 7. conclusions and recommendations arising from each internal audit assignment are communicated promptly to the appropriate level of management and he should actively seek a response . b) Working papers provide. Internal audit evidence is information obtained by an internal auditor which enables conclusions to be formed on which recommendations can be based. The internal auditor should determine what evidence will be necessary by exercising judgement in the light of the objectives of the internal audit assignment. F). E).The internal auditor should obtain sufficient. Internal audit work should be properly recorded because:- a) The head of internal audit needs to be able to ensure that work delegated to staff has been properly performed. D). Top management should take active part in ensuring compliance with action points raised in the report. Evaluation of the Internal Control System:. and c) The preparation of working papers encourages each internal auditor to adopt a methodical approach to his work. relevant and reliable evidence on which to base reasonable conclusions and recommendations.

The internal auditor is often considered one of the "four pillars" of corporate governance. Corporate governance is a combination of processes and organizational structures implemented by the Board of Directors to inform. Role in Corporate Governance:. informing the Committee privately on the capabilities of key managers. strategies and policies towards the achievement of the organizations objectives. suggesting questions or topics for the Audit Committee's meeting agendas. accomplished primarily through participation in meetings and discussions with members of the Board of Directors. A primary focus area of internal auditing as it relates to corporate governance is helping the Audit Committee of the Board of Directors (or equivalent) perform its responsibilities effectively. direct. manage and monitor the organization's resources. .initiatives. and coordinating carefully with the external auditor and management to ensure the Committee receives effective information. This may include reporting critical internal control problems.Internal auditing activity as it relates to corporate governance is generally informal. and the external auditor. This places the CAE in the position to report on many of the major risks the organization faces to the Audit Committee. Internal auditors may help companies establish and maintain Enterprise Risk Management processes. or ensure management's reporting is effective for that purpose. the other pillars being the Board of Directors. management. 3.

AUDIT REPORT Of xyz componey CONTENTS Areas Covered 3 Rating Criteria 5 Detailed Observations 7 Disclaimer 17 .

Scope of Review Order to Cash HR-Payroll .

Rating criteria The observation rating criteria and risk rating criteria are as per the pre-defined parameters specified by the company’s management. as follows: .

Define Standard Operating Procedure .

QUESTIONER .