AUDIT (BUDGET)

Introduction
In today's global health industry organizations or service providers are required to
demonstrate that they have adequate financial controls and safeguards when they host or
process data of their customers. Financial auditing plays an important role in this regard.
Auditing is originated from accounting practices and the development of accounting audit
was motivated by the capitalist production concept, which used it as a tool for financial
control.

In the health field, auditing was introduced in the early 20th century, as a tool to verify the
quality of care, by analyzing the registers on medical records. Today, auditing is used as a
tool to control and regulate how health services are used, and, especially in the private
sector, it has been focused on controlling the costs of the service provided.

What is An Audit?
Audit is an assessment of the management practices, financials and operations of an
organization. The Merriam-Webster Dictionary defines an audit as 'a formal examination of
an organization or individual's accounts or financial situation.' While an audit may apply to
different situations, most people associate audits with the Internal Revenue Service (IRS).

The general definition of an audit is an evaluation of a person, organization, system,

process, enterprise, project or product. The term most commonly refers to audits in
accounting, but similar concepts also exist in project management, quality management,
etc.

According to The Institute of Chartered Accountants of India (ICAI) Auditing is the

independent examination of financial information of any entity, whether profit oriented or
not, and irrespective of its size or legal form, when such an examination is conducted with a
view to expressing an opinion thereon."

Purposes of Audit
 It makes sure that all the financial statements of concern are presented fairly.
 Audit gives a fair and true picture in accordance with financial reporting framework.
 It enhances the degree of confidence of intended users in financial statement.

Types of Audit
There is external and internal audit.

External Audit

An external audit is a review of the financial statements or reports of an entity, usually a

government or business, by someone not affiliated with the organization or agency. This is
an independent review of financial documents provided to the auditor. The audit is
conducted by regulatory agency hired by the entity and the auditors are generally the
public accountants.

For governments or public sectors, an external audit will include a review of the budget,
the allocation of funds and the actual expenses to ensure the budgeted revenues and
expenses were correctly compiled and used and in a private-sector, it includes a review of
the organization's quarterly or monthly financial reports as well as statements on revenues
and expenditures to ensure they are correctly tabulated and reported. These are usually
conducted once a year at the end of fiscal year. A year end financial report is prepared by
the entity, which is one of the documents verified in external audit.

Importance of External Audit

To verify that the financial statements of an entity are correctly presented.

It represents an unbiased procedure as conducted by third party.

It has an independent financial review that ensure the taxpayers that budgeted funds are
being appropriately spent and revenues are appropriately projected in public sectors.

External audit provides an independent assessment of organizational financial holding.

Features of External Audit

1. It generates a summary of overall validity of the financial statements.

2. It uncovers the discrepancies between the statements. presented by the organization and
the external auditor

3. It reflects the conclusion of the audit.

Purposes of External Audit

1. The main purpose of external audit is to ensure that internal control, processes,
guidelines are adequate and in line with the government requirements.

2. To provide an independent and unbiased assessment of an organization's internal

governance and financial matters.

3. To verify internal procedures.

4. To evaluate adherence of the organization to standards and principles.

5. To evaluate the adequacy and effectiveness of existing internal control.

Types of External Audits

Types of audits that are carried out are:

Financial audit:- It is the verification of financial statements of a legal entity.

It is also known as audit of financial statements records

Operations audit: -Financial statements is to ensure the accuracy of accounting It is to

detect errors in the internal control, procedures and mechanisms

Compliance audit: It is to evaluate how employees are abiding by regulations in performing

tasks.

Internal Audit
Internal audit has been recognized as an aid to management for monitoring the financial
performance and effectiveness of various departments/units in the execution of various
programmes, schemes and activities.

Internal audit is an independent management function, which involves a continuous and

critical appraisal of the functioning of an organization with a view to suggest improvements
thereto and add value to and strengthen the overall governance mechanism of the
organization or entity, including the entity's risk management and internal control system.

According to The Institute of Internal Auditors (IIA), 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.

The internal audit activity evaluates risk exposures relating to the organization's
governance, operations and information systems, in relation to effectiveness and efficiency
of operations, reliability and integrity of financial and operational information,
safeguarding of assets, and compliance with laws, regulations, and contracts.

Role of Internal Audit

Internal audit has a significant role in improving the following:

 Regulatory and compliance roles Quality of public expenditure

 Proper implementation of rules and regulation
 Maintenance of proper records
 Accuracy in expenditure reporting
 Efficiency and economy in public expenditure

Purpose of Internal Audit

To establish standards and to provide guidance in respect of planning internal audit.

Objectives of Internal Audit

 To suggest improvements to the functioning of the entity organization.

 To strengthen the overall governance mechanism of the entity organization including
its strategic risk management as well as internal control system
 To prepare for the external audit.

Importance of Internal Audit

1. Helps in understanding and assessing the risks and evaluate the adequacies of the
prevalent internal controls.
2. Identifying areas for systems improvement and strengthening controls.
3. Ensuring optimum utilization of the resources, skills and time of the entity, for
example, human resources, physical resources, etc.
4. Ensures proper and timely identification of liabilities including contingent liabilities
of the entity.
5. Ensuring compliance with internal and external guidelines and policies of the entity
as well as the applicable statutory and regulatory requirements.
6. Safeguarding the assets of the entity.
7. Reviewing and ensuring adequacy of information systems security and control.
8. Reviewing and ensuring adequacy, relevance, reliability and timeliness of
management information system.

Characteristics of Internal Auditor

The internal auditor should:

 Be sincere, honest, and fair in his/her approach to professional work.

 Maintain the confidentiality of the information acquired in the course of auditing unless
there is legal or professional responsibility to do so.
 Exercise due professional care, competence and diligence while performing audit.
Carefully direct, supervise, and review the work delegated to assistants.
 Plan the work well in advance and develop audit plan.
 Obtain sufficient appropriate evidences with his/her professional judgment in order to
draw reasonable conclusions.
 Undertake work involving identification of risks as well as recommend design of control
in existing controls.
 Submit an audit report and suggest remedial actions.