ESSENTIALS OF EFFECTIVE INTERNAL AUDIT- ALL YOU NEED TO KNOW
As already stated, internal audit is an internal activity created by the management for excmination of accounting records and legal compliance on continuous basis by qualified persons having accounting and financial expertise. Internal auditor is an employee of the management who performs his duties in an organisational structure defining line and staff hierarchy where authority and responsibilities are clearly laid down. The plans and policies of enterprise define the goals and objectives to be achieved. Regulations and procedures set the path to reach the destination. It means that the internal auditor has to work in a given environment. There are some essentials which can be very useful for effective internal audit.
1. Independence: Internal audit can serve as a useful tool of financial control only when internal auditor performs his duties independently and objectively.
2. Staff Function: Internal audit should be conducted as a staff function which critically evaluates the working of the line managers. Internal auditor derives his authority from the top management and not from the parallel heads. He should perform his advisory duties without any fear or favour.
3. Organisation of Internal Audit Department: Internal audit department or unit or cell should be well organized. It is headed by chief internal auditor who should be supported by qualified staff. Audit staff should be trained for the efficient performance of duties. Division of work should be done taking into consideration the individual skills and expertise of the audit staff.
4. Reporting System: Effective reporting system is a pre-requisite for the functioning of internal audit unit. Performance reports from different departments should reach the internal audit cell in time and internal auditor reports should reach the concerned authorities at appropriate time. Use of information technology can be of great help for speedy flow of information.
5. Relationship: Internal auditor comes in contact with the management, functional heads, legal advisors, compliance officer, accounting staff, external auditor etc. He should build constructive working relationship with these functionaries.
6. Review of Internal Control System: The system of internal control should be thoroughly reviewed by the internal auditor in order to establish its adequacy and effectiveness.
7. Planning and Control: Internal audit work should be done in a planned and systematic manner. All the preliminaries including preparation of check lists should be ready before the start of audit work. Internal auditor should monitor the working of his staff on regular basis. He should prepare his audit notes on the basis of his own feedback and the internal reports received from his staff. Face to Face interaction can be planned with functional heads to evaluate the working of the systems of internal control.
8. Due Care: The internal auditor should exercise due care in the discharge of his duties. He is answerable for the irregularities and lapses which could not be traced or noticed by him.
9. Collection of Evidences: Internal auditor should not blindly rely on all the evidences which he gathers during the course of audit. He should base his final judgment after checking the reliability and authenticity of the documents, statements, reports. information and explanations received by his office.
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