Audit & Assurance

1. Distinguished between Internal Auditor & External Auditor.

Basis	Internal Auditor	External Auditor
Function	Internal auditor designed to add value & improve an organization's operation.	External Auditor express an opinion on the Financial Statement.
Reporting to	The Board of directors  or the Audit Committee	The shareholder of the company
Relating to	Internal auditor's work relates to the operations of the org.	External auditor's work relates to the Financial Statements.
Relationship with the company	Internal auditors are very often employees of the org.Although sometimes it is outsourced	External Auditors are independent of the company and its management.
Engaged by	Internal auditors are employed or engaged by management	External auditor's are engaged by govt.

(2) General Evaluation of Internal audit Function

The external auditor should consider the following:-

1. Organisational Status :Whether the internal audit is undertaken by the outside agency or by the internal departmemt. To whom the internal audit head reports to ; The rights and limitations in carrying out the audit -These will affect the status in which the audit function is positioned in an organization
2. Scope of Function : The depth and coverage of areas brought within the fold of internal audit.
3. Technical competence : The skill content of the operating personnel in the internal audit function.
4. Due Professional Care: The planning and performance of internal audit function as evidenced by audit program, manual, working papers, documentation, reporting etc.
5. Consideration of internal audit report : The weight given by management to the reports of internal auditors.

(3) Evaluative Criteria for Good Internal Check

A good internal check system must provide in-built checks and balances while the operations are being performed. To achieve this end,the following control mechanism may be introduced :

1. Division of Work:No one should be allowed to have right to perform the work from origin to end. For example,a transaction of sale may have to be split into display of article by a staff,the preparation of invoice by another the receipt of cash against the invoice by a third clerk, the delivery of article against the proof of receipted invoice by another clerk,checking of outward movement of article against delivery order by a clerk and so on.
2. Job rotation: No individual clerk should be allowed to occupy a particular area of operation for long. Familiarity with and exclusiveness in a position offers a person greater flexibility to attempt manipulation with the system.
3. Authority levels: There must be clear cut authority levels for according sanctions to various transactions. Commensurate to the authority vested,responsibility must be extracted.Existence of authority levels result in review of operations of subordinates.
4. Separation of custody and recording: There needs  to be effective control by way of separation that the persons handling an asset cannot make entries for the transactions without any counter check. For example in a bank the payments effected by cashier are entered in his rough cash chits. Simultaneously the officer authorising payments maintain a scroll of payments authorised.
5. Accounting controls: In order to ensure internal check with regard to recording of transactions in accounting records various cross checks must be introduced to ensure that the accounting records reflect reliable information.

(4) Contents of Audit Report

There are some contents that contains in an Audit Report. They are -

• Acceptable Accounting  Policy
• Consistent
• Relevant rules and regulations
• Consistent with auditor's knowledge
• Adequate disclosure of all material matters

(5) Basic elements of Auditor’s Report

The auditor's report should incorporate the following elements in it. They are -

1. Title
2. Addressee
3. Identification of the financial statements audited
4. A reference to the auditing standards,practices followed
5. Expression or disclaimer of opinion on tje financial statement
6. Signature
7. Auditor's address
8. The date of the report