The Importance of Audit

for Big Corporate Houses

 What is Audit?
• Audit involves the verification of
reports under the laws in order to
determine whether liabilities and
financial statements are accurate,
correct and complete
 Internal Audit
• Internal audit is a system of control
over compliance with the established
accounting procedure and reliability of
the internal control system functioning
organized on an economic entity in the
interests of its owners and regulated by
its internal documents.
 External Audit
• External audit is carried out on a
contractual basis by audit firms
in order to objectively assess the
state of affairs in the field of
accounting and financial
reporting of an economic entity.
 Internal Audit vs External Audit

1) The objectives of the external auditor are

determined by the charter, while the objectives of
the internal audit are determined by the
management.
2) External auditors are responsible before the
owners, shareholders and government of the
company. Internal auditors are responsible only
before the head of the company.
3) When appointing external auditors as shareholders
of the company, internal auditors are appointed by
employees of the organization.
 Why Audit is Important?

• Embracing audit helps companies to

verify that all the financial statements
are true and provides stakeholders as
well as customers, investors with
tremendous credibility and confidence
in terms of financial situation of the
company
 Toshiba Scandal

• In July 2015, Toshiba corporation

faced a serious accusation claiming
that they inflated their earnings by 1.2
billion dollars over the last couple of
years which is considered as on the of
the biggest accounting scandals ever.
 Why Internal Audit is Important?

• Without internal audit company

could encounter with heavy fines
and loss of customers as a result of
small financial error on the
transactions.
 Why External Audit is Important?

• When the companies do not have

enough time and resources to carry
out detailed research about the
financial situation of the company,
they need to hire external audit
companies to handle this process for
them.
 Enron Scandal

• Enron Corp was inflating their

earnings by hiding billions of
dollars of bad debt which led
them to lose 74 billion dollars and
drop the stock price from $90 to
$1 during a year
Thank You for Your Attention!