SCOPE AND OBJECTIVES OF INTERNAL AUDIT
The APB statement of auditing standard 500 is titled “Considering the work of
internal audit”
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
The standard describes ‘Internal audit’ as an appraisal or monitoring activity
established by management and the directors for the review of the accounting
and internal control systems as a service to the entity. Internal audit functions
by:
(a) examining,
(b) evaluating and reporting to management and the directors on the
adequacy and effectiveness of components of the accounting and internal
control systems.
The external auditors have sole responsibility for:
(a) The audit opinion expressed;
(b) Determining the nature, timing and extent of external audit procedures;
(c) All judgements relating to the audit of the financial statements of the
external auditors;
(d) That responsibility is not reduced by any use, made of internal audit
work; and
(e) However, internal audit work may serve to provide external auditors
with audit evidence.
“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.
Generally, internal audit activities include one or more of the following:
(a) Review of the accounting and internal control systems: the establishment
of adequate accounting and internal control systems is a responsibility
of management and the directors which demands proper attention on a
continuous basis. Often internal audit is assigned specific responsibility
for reviewing, the design of the systems, monitoring their operation and
recommending improvements thereto;
(b) Examination of financial and operating information: this may include
review of the means used to identify, measure, classify and report such
information and specific enquiry, into individual items including detailed
testing of transactions, balances and procedures;
(c) Review of the economy, efficiency and effectiveness of operations
including non-financial controls of an organisation;
(d) Review of compliance with laws, regulations and other external
requirements and with internal policies and directives and other
requirements including appropriate authorisation of transactions; and
(e) Special investigations into particular areas, for example suspected
fraud” (Chitty, 2004).
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