INTERNAL AUDIT AND CONTROL
At the planning stage of an audit, the external auditors should consider the
activities of internal audit and their effect, if any, on external audit procedures.
This chapter considers the scope and objectives of internal audit. The scope
and objectives of internal audit vary widely and depend on the size and
structure of the entity and the requirements of its management and directors.
The student taking professional examinations of the Institute of Chartered
Accountants of Nigeria should have understanding of the separate roles of
internal audit and external audit, and how they are interrelated. It is important
to know that the role of internal audit is determined by management and the
directors who set its objectives. However, the external auditors are engaged to
report independently on the financial statements; their role is statutory in nature.
The external auditors’ primary concern is whether the financial statements are
free of material misstatement. The internal audit function’s objectives vary
according to the requirements of management and the directors and, generally,
less emphasis is placed on materiality consideration.
The means of achieving their respective objectives are often similar and thus
certain of the work of internal auditors may be useful in determining the nature,
and timing of external audit procedures. If an entity has an audit committee,
monitoring the activities of the internal audit function and the relationship
between the entity’s internal and external auditors is often one of that
committee’s responsibilities.
As part of the planning of an audit, an auditor should have understanding of
the accounting and internal control systems sufficient to plan the audit and
develop an effective audit approach.
The auditor should use professional judgement to assess the components of
audit risk and to design audit procedures to ensure it is reduced to an acceptably
low level.
Auditors are only concerned with those policies and procedures within the
accounting and internal control systems that are relevant to the financial
statement assertions. The understanding of relevant aspects of the accounting
and internal control systems, together with the inherent and control risk
assessment, enables auditors to:
(a) assess the adequacy of the accounting system as a basis for preparing
the financial statements;
(b) identify the types of potential misstatements, that could occur in the
financial statements;
(c) Consider factors that affect the risk of misstatements; and
(d) Design appropriate audit procedures.
The learning objectives of this chapter have been carefully considered in
structuring the topics in this chapter. A careful study of this chapter will enable
the reader to understand the scope and objectives of internal audit, understand
the relationship between external and internal audits as well as internal control
systems. At the end of this chapter, the reader should be able to answer typical
examination questions on internal audit and control.
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