Difference between internal checks and internal audit:
Internal CheckInternal Audit.1. Compliance with applicable ethical principles (such as the ACCA's Rules of Professional Conduct). The differences between the fiscal and the financial audit can lead to confusion, we detail them. He is justified in believing in trust worthy servants of the company provided it takes reasonable care�. However, the report doesn�t guarantee accuracy of the accounts. AAS 3: Audit documentation
Requires an auditor to prepare sufficient and appropriate audit documentation that provides a record of the basis for the auditor�s report and to demonstrate that the audit was performed in accordance with AASs and applicable legal and regulatory requirements
Audit documentation implies record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached. Auditor must plan and perform an audit with an attitude of professional skepticism. Absentee workers should be paid through others workers only after written authorization is received. Difference Between Verification and Vouching. The institute of chartered accountants of India states that �an auditor is expected to maintain evidence of work done by him and his staff�. Secondary Objective:
The following objectives are incidental to the main objective of audting. Duty to make a declaration of Solvency, if the company Goes into Voluntary Winding up
When a company goes into voluntary winding up, then a declaration of solvency is to be made by the directors of the company. Cost Price: Its price paid to purchase an asset including installation and other expenses incurred to make the asset into workable condition. The principles also apply when an SAI is IC is a continuous process.4. If machinery is acquired under hire purchase he should verify the hire purchase agreement. Sound practices: the company should have well established procedures, policies, delegations organizational manuals etc. Audit engagement letter must be clear and precise and must include the scope of assignment, declaration that the audit process are subjected to peer review, the objectives of financial statements, communicating matters of conflicts of interest, and the responsibilities of the management. The various duties of the company auditor are as follows:
To make special enquiries and investigation: in connection with the following matters under section 227(1-A) of the Companies Amendment Act 1965. Scope of Audit. In case of hotel accommodation, the charges received for accommodation, mess, fines etc should be examined. Whether personal expenses have been charged to the revenue account. Detection and prevention of errors: errors are mistakes committed unintentionally because of ignorance, carelessness. In the case of London Oil Storage Company Ltd, it was held that it is the duty of the auditor to verify the existence of assets, stated in the Balance Sheet and that he will be liable for any damage suffered by the client, if he fails in this duty. A written audit programme should be made setting forth procedures needed to implement the audit plan. Auditor should consider whether CIS:
Ensure that authorized, correct and complete data is made available for processing;
Provide for timely detection and correction of errors;
ensure that in case of interruption in the working of the CIS environment due to power, mechanical or processing failures, the system restarts without distorting the completion of the entries and records;
Ensure the accuracy and completeness of output;
Provide adequate data security against fire and other calamities, wrong processing, frauds etc. In case of any claim is to be made from the insurance company only audited account should be submitted. Emergence of joint stock companies changed the approach of auditing as ownership was pestered from management. Creditors: The auditor should obtain the confirmation statement from the creditors and compare this with the statement of creditors as sent by the company. The retiring auditor has the right to send a representation to the company which he can ask the company to send to the shareholders. Cost audit: cost audit is defined as the verification of cost accounting records. VouchingVerificationVouching examines the entries relating to transactions recorded in books of accounts.Verification examines the assets and liabilities appearing in the Balance Sheet.Vouching is done throughout the year.It takes place at the end of the year.Vouching is bases on only documentary examination.Verification is based on personal as well as documentary examination.It does not include verification.It includes valuation.Vouching is normally done by audit assistant.It1 is done by the auditor himself. It also affects the BS if stock if overvalued profit is inflated and if its understated it encourages creation of secret reserves. Punjab, Sindh, KPK, Balochistan and Azad Kashmir and can get benefit from these notes. For continuing engagements, the auditor would update and re-evaluate information gathered previously, including information in the prior year�s working papers. Principles of International Auditing and Assurance, 4th Edition, by Rick Hayes, Philip Wallage and Peter Eimers, is an extensively revised and updated edition of Principles of Auditing. It is useful to take certain financial decisions like issuing of shares, payment of dividend etc. The company has to give intimation to the auditor so appointed within seven days of his appointment. Found insideAudit reports If doubt no longer remains, issue a standard unmodified report If ... in Application of GAAP Changes in accounting principles that result in a ... Found inside – Page 469Since one of the expenses involved is the charge for uncollectible notes and accounts , the auditors ' review of doubtful receivables should be looked upon ... : All that he can do is to verify the original cost price and to ascertain as far as possible the current values are fair and reasonable and are in accordance with accepted principles. AAS 33: Engagements to review financial statements
This Standard provides guidance to the auditor�s professional responsibilities, the formats and contents for a review of financial statements. Principles of Auditing & Other Assurance Services - Kindle edition by Whittington, Ray. Unit 1 Principles & Practice of Auditing Prepared & Presented by Ms. Himani R. 2. There are two main principles which he observed before declaring dividends to the shareholders:
In every case, dividend must be paid in accordance to the provisions of section 205 of the companies act and of the company�s memorandum of association and articles of association. It is a strictly professional job and is done by persons who are formally trained and qualified for the purpose. ADVANTAGES:
Errors and frauds are discovered and rectified quickly. Internal Check regarding Cash Receipts. Loans: Loans may be either secured or unsecured. Internal Check as regards to issue of Materials: Materials should always be issued against material requisition note. He should go through various documents like MOA, AOA, prospectus etc. Other related documents R.S. Patents are written off over the period of which they are acquired. • Any audit is conducted pursuant to well-defined and internationally acceptable standards. Found inside – Page 25GAO—GAGAS Ethical Principles Apply to auditors of government entities and entities receiving government awards GAGAS requires independence and compliance ... Book Value: It�s the value of an asset, as shown in the Balance Sheet. Auditing theory and practice is presented in a comprehensible manner, suitable for students who have not had significant auditing experience. The relationship between accountancy and auditing is clearly explained. Solution Manual for Principles of Auditing & Other Assurance Services 22nd Edition Whittington. A senior officer should review the documents to ensure their correctness. Section 478
On an application from the official liquidator, the auditor of a company is liquidation can be publicly examined in high court. If the suggestions are not carried out, he has the right to refer the matter to the members and also to report that in the audit report. Data and techniques for its accuracy and authenticity. We're available through e-mail, live chat and Facebook. of accounts of a company by auditing the accounts. It avoids duplication of work. Share to Twitter. This makes verification easier. Based on the tow legal decisions regarding the distribution of capital profits, it can be concluded that capital profits cant be distributed as dividends, unless:
All the other assets have been revalued. Compliance with the basic principles requires the application of auditing procedures and reporting practices appropriate to the particular circumstances. it should be remembered that the land is not depreciable assets. But he auditor is not expected to answer questions in the general meeting. Assets and liabilities of the company and its subsidiaries and
The rate of dividend paid by the company in respect of each class of shares in the company for each of the five financial years preceding the issue of prospectus. Auditing is a critical examination of the records and books of account of a business by an independent qualified person for ascertaining the authenticity . Sometimes, goodwill may also be created by spending huge amounts to innovate new products. The auditor should examine the list of shareholders with the register of shareholders to see that the total amount of dividend payable agrees with the dividend account. To see that exhibited liabilities are valid. The purpose is to detect errors and frauds that are already committed.3. Land and Building: For verifying land and building the auditor should differentiate between free hold and lease hold properties. 3� � Ϥ � ܨ 0 � � �
6� �� B 6� � Ǣ 6� & Ǣ � r [� |� c� � 7� � � � � �� �� $� X � � � � $� $� $� $� � � � D� 4� $ � � � 4� : N \ & & & & & & ���� INTRODUCTION TO AUDITING. Verification is made on the basis of evidence.Valuation is made based upon the certificate issued by the officials. Fixed Assets. Auditor should apply analytical procedures at the planning (in understanding business and potential risks) and overall review stages of the audit. An auditor audits many types of companies and he can�t be an expert to value all kinds of assets. After that, in some cases, the appointment of auditors or auditor requires special resolution. This may be either orally or in writing. A list of unpaid wages should be prepared after the distribution of wages. DISADVANTAGES:
After the auditor�s visit is over, alternative may be made. An auditor evaluates a system of control before commencing an audit work his work becomes easier if the control system is efficient. � The objectives of auditing depends upon the purpose of his appointment. (e) Verify the authenticity and validity of the . Section 233
If the auditor does not comply with the requirement of section 227 and 229 as to make of his report, of signing or authenticating any document and if such default on his part is willful, he shall be punishable with fine which may extend to Rs. According to Section 226(1) and 226(2) of the Companies Act, the prescribed qualifications of an auditor are as follows:
A person who is a chartered accountant within the meaning of the Chartered Accountant�s Act 1949. Principles of Auditing and Other Assurance Services. 3 primary types of audits performed by CPAs are; (1) financial audit, (2) operational audit, and (3) compliance audit. If the investments are larger in number he should obtain the schedule of investments certified by a responsible official. AccountingAuditingIt�s a continuous process carried out throughout the year.1.It�s a one time activity after the closure of accounting year. When planning the audit, the auditor should make inquiries of management about management�s assessment of misstatements resulting from fraud and error and internal controls placed to address such risk and any known fraud or error detected/suspected/investigated by management. Stock is valued at cost price/ market price whichever is lower/less. AAS 14: Analytical procedures
"Analytical procedures" means the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or which deviate from predicted amounts. Audit fees.Accounting is concerned with recording of business transactions systematically. d. Audit is a critical review of the system of accounting and internal control. There should be a proper system of receiving donations. Right to sing the Audit Report
As per section 229 of the companies act only the person appointed as auditor of the company or where a firm is so appointed, only a partner in the firm practicing in India, may sign the audit report or authenticate any other document of the company required by law to be signed. The scope of audit encompasses verification of accounts with a intention of giving opinion on its reliability. The creation of secret reserve causes loss to the shareholders who are the real owners as they do not get their due share of profit. He can also decide whether detail verification is necessary or not. This includes competence in selecting the types and amount of evidence to accumulate and effectively evaluating evidence to reach the proper . This has had a major impact on this revision of the text as Whittington has been involved in the audit standards creation process. The auditing report is prepared based on the information agreed by the clients and so it is not guaranteed. In case analytical procedure is used as substantive test then auditor must consider reliability, relevance and source of information, changes required to be made to make the information comparable. The portion of preliminary expense not written off will be shown in the balance sheet on the assets side. 0073010847 9780073010847. zzzz. Its concerned with verification of accounts prepared by the accountant. INTERNAL CONTROL SYSTEM
It includes division of duties and their rotation, authorization procedures, adequate record maintenance, responsibility for safeguarding of assets etc. Depreciation rate is decided by the management. The regular work of the organization will be affected. The payments of net amount should be verified from bank statement. The company can also transfer a higher percentage of its profits in accordance with the rules framed by the central govt., in this regard. Provisions for Depreciation. Verification of Share Capital: Share capital constitutes the amount contributed by the owners. � All the profits of a company are not divisible. Internal audit is a continuous process.9. Instances of factors to be to be considered are the nature of services, terms of contract, material financial statements affected by use of service organizations and their inherent risks, client accounting and internal control interactions with those of service organizations, financial strength and capabilities of service organizations etc. lOMoARcPSD|9200304 Revision Notes Principles Of Auditing Chapter 1 8 Principles of Auditing (Athabasca University) StuDocu is The emphasis now is clearly on the verification of accounting date with a view on the reliability of accounting statement. usually the cash counters are computerized which brings down the human errors. Written in a clear and understandable manner, it is particularly appropriate for students who have had limited or no audit experience. That the affairs of any company are not being managed in accordance with sound business principles or prudent commercial practices or
That any company is being managed in a manner likely to cause serious injury or damage to the interests of the trade, industry or business to which it pertains or
That the financial position of any company is such as to endanger its solvency. The grants must be utilized as per terms and condition specified by the state govt., UGC. Cash received from 1st customer is misused when the 2nd customer pays it is transferred to the 1st customer�s account. There is an inverse relationship between detection risk and the combined level of inherent and control risks. Criminal Liabilities of a Company Auditor. The statement of reconciliation of fees received and total fees receivable should be verifies. The Liabilities of a Company Auditor. Special offer includes all VIP Principles Of Auditing And Other Assurance Services: With Dynamic Accounting PowerWeb Kurt Pany services: top 10 writers, priority Support, VIP editing, extended revision period, SMS notifications, and plagiarism check at a very attractive price. Past Losses:
Under section 205(1) (b) of the companies act if a company has incurred a loss in any financial year or years after the companies amendment act 1960, then either the amount of loss or the amount equal to the amount of depreciation whichever is less shall be set off against the profits of the company before dividends can be declared. Right to Receive Notices and Other Communication Relating to General Meetings and to attend them. IC doesn�t require separate staff. Today most of the economic activities are largely conducted through public finance. Control over purchases: the system of internal control regarding purchases should be developed in such a manner that purchasing accounting, handling and issuing of goods are properly controlled. The auditor is neither a guarantor nor an insurer. Principles of Management Accounting.Management accounting is the direction of accounting of an enterprise, which supports the management system of its entrepreneurial activity. He should check the insurance paid on the vehicle etc. Misappropriation of Goods: here records may be made for the goods not purchase not issued to production department, goods may be used for personal purpose. Errors and Frauds are detected early. Advantages of Internal Audit:
Internal Audit makes the system of internal control more effective and efficient. Reasons for Departure from a basic principle or essential procedure in an AAS to achieve audit objective more effectively. In the above mentioned circumstances, the appointment of an auditor shall me made by passing a special resolution (that is 75% or more of the members present should agree for the resolution). Discount on issue of shares and debentures: whenever shares and debentures are issued at discount, the company shows discount amount of the asset side till it is written off. For each visit special ticks should be used. Whether report on branch accounts audited under section 28 by a person other than the company�s auditor has been forwarded to him as required by clause (c) sub section (3) of that section and how he had dealt with the same in preparing the auditor�s report. Clause 86: this states that the board may from time to time pay to the members such interim dividends as it appears to be justified by the profits of the company. It should be remembered that is to be charged even if the building is not used during the year. When regular final accounts are required. (1) $3.57. Obtaining a letter of confirmation from the bank. Auditor and Client must agree on the terms of engagement that is recorded in a contract or any other suitable form of contract. to conclude it cab be said that, it is not the main objective of the auditor to discover frauds and irregularities. If the machinery is imported he should verify the export license copy of invoice, permission of RBI from foreign exchange payment. He should impress upon the audit staff. On the basis of the review and assessment of the audit evidences, Auditor should express his opinion regarding financial statements of an organization −. They help the auditor to understand the efficiency of the accounting system, internal check system etc. It is a device for monitoring the work.7. The Balance Sheet and P&L account dealt with by the report are in agreement with the books of accounts and returns. That is, that amount of depreciation forming part of past losses shall be allowed to set off against the future profits first. The 4th clerk checks the calculations deduct amount for PF, IT, etc to arrive at net amount to be paid to workers. It builds on and further develops the . As per section 229 of the companies act 1956, it is the statutory duty of the company auditor to sign the report prepared by him. Efficient internal check system reduces his work but not his responsibility. Criminal liability of an auditor arises from errors in the performance of audit. A qualified chartered accountant or the auditor of the company can act as authorized representative and may attend the Income Tax Authority or the Appellate Tribunal in connection with the proceedings under the Income Tax Act. The summaries are written by students themselves, which gives you the best possible insight into what is important to study about this book. Amount provided by the Central Government. It increases the morale of the staff and thus it prevents frauds and errors. The scope of audit work liabilities, duties etc are explained by concerned statutes.3. : He is not an insurance against frauds and errors. If the articles of association of a company are silent on this matter, dividend must be paid according to Regulations 85 and 94 of table A schedule 1 appended to the companies act. On the other hand if a transaction is partially recorded, the trial balance will not agree and hence it can be easily detected. AAS 13: Audit materiality
Information is material if its misstatement (omission or erroneous statement) could influence the economic decisions of users taken on the basis of the financial information. A time budget, in which hours are budgeted for the various audit areas or procedures, can be effective planning tool. Responsibility for the preparation of financial statements is that of the management of the enterprise. Under section 488(1) of the Companies Act, this declaration is to be accompanied by the report of the auditor of the company under the section 488(2) of the companies act. It would be a loss to the company. If a company sells a part of the property at a cost higher than the original cost of such assets the profits thus earned is capital profit. So the tax audit is an independent process. It should be remembered that a computer does not take decision on its own, but only facilitate the process of decision making. Expenditure on hostel facilities should be examined like purchases of food grains, other provisions, stocks, repairs, water charges, electricity charges, maintenance etc. Compulsory Reappointment. Working papers should be preserved properly because they are important documents. Such persons are also known as certified auditors and are always subject to rules made in this behalf by the central government [section 226(2)]
The central government in empowered to frame rules relating to granting renewals, suspension or cancellation of such certificates. 8 In case of temporary advances, enough care must be taken in verifying the delays. Section 629
If any person including an auditor intentionally gives false evidence upon nay examination up on oath or solemn affirmation authorized under the act or in any affidavit, deposition or solemn affirmation in or abut he winding up of any company under he act, he shall be punishable with imprisonment for a term which may extend to seven years and shall be liable to fine also. Hence, its said that �Audit begins where accounting ends�. But on the other hand, the scope of duties of the auditor can be enlarged by passing a resolution at the annual general meeting making a provision in the Articles of Association of the company. 3 types of the worksheet are; (1) General worksheet, (2) Detailed worksheet, (3) Audit worksheet. No prescribed qualification is required to be an accountant.2. The Internal Auditor reports to the shareholders.9. Section 477
When the company is wound up, the auditor is subjected to a private examination by the court and is also liable to return to the court any books and documents of the company in his possession. Vouching Proves the accuracy of book entries but certification on balance sheet can be made only after verification. Any audit not done in accordance with the AAS, the auditor draws attention to material departures there from in his report. Where going concern assumption is appropriate because of mitigating factors, the auditor should consider whether management�s plans or other factors need to be disclosed in the financial statements. Found inside – Page 631Practice of Internal Auditing S. Rao Vallabhaneni ... In a way, the Kano principles validate what the audit stakeholders value the most. The interest/dividend received on investment during the year should be verified from investment register as well as cash book. The auditors do this by critical analysis of the content and presentation of the financial statements. AAS 6 : Risk assessments and internal control
Obtain an understanding of the accounting and internal control systems to plan audit, assess audit risk and design procedures to ensure it is reduced to an acceptably low level. Periodical/ Annual Audit: it is a kind of audit where the auditor verifies the account at the end of the financial year. The counterfoils of receipt book should be compared with hostel charges register and cash book. He is a professional auditor appointed by the company who is not an employee.2. He should exercise reasonable care and skill, analysis critically all the facts and satisfy himself that generally accepted. Found inside – Page 173Are internal auditors key players in the external aspects of corporate ... (In 1953, I was taught the fundamental principles of auditing using a much ... 2. Auditor needs to comply with the code of ethics prescribed by the Institute of Chartered Accountants of India. The service organization�s auditor report shall be any one of the following: Type A or Type B reports. &. Verify whether proper accounting principles and procedures are followed.
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