INTERNAL AUDIT
INTERNAL AUDIT
1 Internal audit
‘Internal audit’ is an appraisal activity established by management for the review of accounting and internal control systems as a service to the entity. It reviews, monitors and make recommendations for the improvement of systems.
Other activities include:
Examination of financial information
Review of economy, efficiency and effectiveness (‘value-for-money’ audits)
Review of compliance with external laws and regulations
Review of internal policies
Review of the authorization of transactions
Special investigations, including fraud
Risks assessments
Comparison of internal and external audit function:
Internal auditor
External auditor
Objectives
Advise management on adequacy of systems to protect the organisation
Provide opinion on ‘true and fair view’/present fairly
Legal basis
Not a legal requirement but corporate governance guidance recommends its need to be continually assessed
Legal requirement for most limited companies and public bodies
Scope
Determined by management, both operational and financial
Financial focus as determine by legislation
Approach to work
Increasingly risk based
Assess risks
Evaluate and test systems and recommend improvements to management
Increasingly risk based
Testing underlying records and transactions that form the basis of the financial statements.
Responsibility
To advise management on internal control and corporate governance
To report to shareholders on the truth and fairness of financial statements
2 The external auditor and reliance on internal audit
ISA 610 Considering the Work of Internal Audit governs the situation where external auditors are auditing that operates an internal audit function.
Reasons why external auditor should use internal audit
Much duplication of work may be eliminated – eg internal audit may already have detailed systems descriptions, flowcharts.
Internal audit may have done detailed work on areas of concern to external audit
1 Internal audit
‘Internal audit’ is an appraisal activity established by management for the review of accounting and internal control systems as a service to the entity. It reviews, monitors and make recommendations for the improvement of systems.
Other activities include:
Examination of financial information
Review of economy, efficiency and effectiveness (‘value-for-money’ audits)
Review of compliance with external laws and regulations
Review of internal policies
Review of the authorization of transactions
Special investigations, including fraud
Risks assessments
Comparison of internal and external audit function:
Internal auditor
External auditor
Objectives
Advise management on adequacy of systems to protect the organisation
Provide opinion on ‘true and fair view’/present fairly
Legal basis
Not a legal requirement but corporate governance guidance recommends its need to be continually assessed
Legal requirement for most limited companies and public bodies
Scope
Determined by management, both operational and financial
Financial focus as determine by legislation
Approach to work
Increasingly risk based
Assess risks
Evaluate and test systems and recommend improvements to management
Increasingly risk based
Testing underlying records and transactions that form the basis of the financial statements.
Responsibility
To advise management on internal control and corporate governance
To report to shareholders on the truth and fairness of financial statements
2 The external auditor and reliance on internal audit
ISA 610 Considering the Work of Internal Audit governs the situation where external auditors are auditing that operates an internal audit function.
Reasons why external auditor should use internal audit
Much duplication of work may be eliminated – eg internal audit may already have detailed systems descriptions, flowcharts.
Internal audit may have done detailed work on areas of concern to external audit