Question

Question 6 Several firms have internal audit function to govern their business operations. The head of internal audit department of one of your clients has invited you to give a talk to the members of his department during their annual training week. He would like your views on the different roles of external and internal auditors, the type of work that each carry out and their reporting responsibilities. Required: Draft notes that you will use when giving your talk, paying particular attention to the differences and similarities of the following features of internal and external auditors: (i) independence; (ii) the work carried out on systems of internal control and operations; (iii) reporting responsibilities. (Word Limit: Minimum of 550 words. Maximum of 600 words)

Answer 1

(i) INDEPENDENCE :- The Internal Audit Department Should Have an Independent Status in the organization.Internal Auditor is Appointed by management to ensure the accruracy of opertions,reliability of management data,ascertaining safeguarding of assets and compliance with policies and plans to achieve objectives of organization.External and Internal auditor both should be independent of their work towards organization in evaluating opertional and financial soundness and  give their opinion based on thier examination of financial statements and records submitted by management.They evaluate the effectiveness of internal controls implemented within organization and give opinion for improvements.External Auditor can rely on work performed by internal auditor after examining his work but he is independently responsible for his opinion on financial statements of organization.

(ii)  THE WORK CARRIED OUT ON SYSTEM OF INTERNAL CONTROLS AND OPERATIONS :- Management is responsible for implementing internal controls within an organization.Auditor has to evaluate whether controls implemented are effective in ac,cordance with nature and size of a business.Based on his evaluation, he design and perform audit procedures to form his opinion on financial statements. in case there is a deficiency in internal controls he might extend his test on controls and perform procedures to improve them and give their opinion to management about internal controls.Both internal and External Auditor perform same procedures of evaluating internal controls.External Auditor can rely on internal auditor's work.

(iii) REPORTING RESPONSIBILITI ES ;- Auditor is Responsible for his opinion on financial statements.External Auditor is accountable for shareholders of a company or owners of an entity whereas internal auditor is responsible towards management.External Auditor shall state in his report that - (i)whether financial statements give a true and fair view of state of company's affairs as at the end of the financial year.(ii)whether proper books of accounts have been kept by the company and whether reports on accounts of branch office received by auditor and deal with it in appopriate manner in his final report(iii)whether he has obtained all information and explannations that are necessary for the audit,(iv)whether financial statements comply with accounting standards and companies profit and loss account and balance sheets are in agreement with the books of account and returns.(v)whether accounting policies selected by company are appopriate and are in and are in compliance with applicable accounting standard.

In the internal audit report the internal auditor intimate significant deficiencies in the internal controls implemented to the top management and give their suggestions for imprvements.they also give their report to external auditor of their work and examination.

external auditor examines report of internal auditor based on his knowledge and experience of audit and is solely responible for his audit opinion.