Question

Karim is the president of Samirad Company. At a meeting of the board of directors, Karim was asked to explain why audits of the company are made by

(1) internal auditors

(2) independent auditors, and

(3) government auditors.

One board member suggested that the company's total audit expense might be less if all auditing was done by internal auditors. Karim was unable to distinguish between the three types of auditors or to satisfactorily respond to the board member's suggestion. Instructions:

1-Explain the different kinds of audits made by each type of auditor.

2-Identify the sources of practice standards applicable to each type of auditor.

3-Comment on the board member's suggestion to have all auditing done by internal auditors.

Answer 1

Answer:

a. Explain the different kinds of audits made by each type of auditor.

An internal auditor conducts audit that adds value to the organization by providing recommendations that intend to enhance the operations of the company in various aspects. The objectives of an internal audit are 1) determine if laws and regulations are complied with by the company, 2) operations are effectively conducted, 3) financial records/statements are fairly stated and 4) safeguard company assets. An internal audit is a comprehensive type of audit that can either be a financial statement audit, compliance audit, operational audit, management audit and performance audit. Internal auditors are typically, employees of the organization. Independent auditors, on the other hand, provide external audits. The most common type of external audit is financial statement audit. The objective of independent audit is to provide determine if controls are effectively designed and conducted, and financial statements are fairly stated. This requires providing an assurance report, as an output of the service. Independent audits are typically, on a client-engagement service provider relationship. Government audits are normally conducted by government auditors that verify public management, use of funds and compliance to laws and regulations. The activity is intended to analyze the economy that work around efficiency and transparency, in accordance with the charter of the government auditors.

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b. Identify the sources of practice standards applicable to each type of auditor.

International Standards for the Practice of Internal Auditing - Internal Auditors.

International Standards on Auditing - External Auditors.

Generally Accepted Government Auditing Standards - Government Auditors.

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c. Comment on the board member's suggestion to have all auditing done by internal auditors.

Internal auditors cannot conduct external audits and government audits. External audits are conducted by a third party who has the fundamental principles expected of a professional auditor, independent of the company and free of any threats to compliance with the principles. External auditors provide an assurance report that requires independence from the party being audited. Internal auditors, on the other hand, are employees of the company, thus, losses their independence. Government audits are also conducted by government auditors that also considers independence as their fundamental principle. These audits have different objectives that requires different auditors to conduct.