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Assurance

Professional Stage: Knowledge level


Internal Audit (Chapter- 9)
1 !hat is internal audit"

Internal audit is an appraisal or monitoring activity established within an entity as a service which
includes examining, evaluating and monitoring to management and directors on the adequacy and
effectiveness of components of the accounting and internal control systems.
# $ow the internal audit function can assist the %oard"
The internal audit function can assist the board:
By acting as auditors for board reports not audited by external auditors;
By being the experts in auditing and accounting standards and assessing in implementation
of new standards;
By leasing with external auditors, particularly where external auditors can use internal
audits wor and reduce the time and therefore cost of the external audit.
& 'istinguish %etween internal audit and e(ternal audit
)eason
i! Internal audit is an activity designed to add value and to improve an organi"ation#s
operations;
ii! $xternal audit is an exercise to enable auditors to express an opinion on the
financial statements.
)eporting to
i! Internal auditors report to the board of directors or the audit committee;
ii! $xternal auditors report the shareholders on the truth and fairness of the financial
statements.
)elating to
i! Internal audits wor relates to the operation of the organi"ation;
ii! $xternal audit#s wor relates to the financial statements.
)elationship with the co*pan+
i! Internal auditors are very often employees of the organi"ation;
ii! $xternal auditors are independent of the company.
Appoint*ent
i! Internal auditors are appointed by the management;
ii! $xternal auditors are appointed by the shareholders.
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, !hat are the -e+ roles of internal audit in relation to ris- *anage*ent"
Internal audit or internal audit department has two ey roles to play in relation to organi"ational
ris management:
$nsuring the company#s overall ris management policy to ensure its effective operation;
i.e. %verall ris management policy; and
$nsuring that strategies implemented respect of business riss operate effectively; i.e.
implemented strategies.
. !hat does internal audit do"
Internal audit successfully carries on the followings:
Internal audit has two ey roles to play in relation to organi"ational ris management:
i! $nsuring the companies ris management system operates effectively;
ii! $nsuring that implemented strategies in respect of business riss operate
effectively.
Internal auditors undertae operational audit;
Internal auditors also undertae special investigations; and
Internal auditors must be far from getting involved in operational decision maing
matters.
/ Identif+ the -e+ role of internal audit as part of internal control

The ey role of internal audit will be in monitoring the overall process and in providing assurance
that the systems designed by the departments meet ob&ectives and operates effectively.
0 !hat activities are usuall+ involved in internal audit"
The following activities are usually involved in and internal audit:
'onitoring internal control;
$xamining financial and operational information;
(eview of the economy, efficiency and effectiveness of operations;
(eview of compliance with laws, regulations and other external requirements;
)pecial investigations.
1 !hat is an operational audit" !hat are the aspects of an operational assign*ent"
2perational audit
%perational audits are the audits of the operational processes of the organi"ation with the ob&ective
of monitoring management#s performance and ensuring company policy.

There are two aspects of an operational assignment:
$nsure policies are adequate; and
$nsure polices wor effectively.
!hat are the other functions of an internal audit in addition to regular function"
Internal audit may also carry out other functions for the directors in a company. They might
undertae special investigations in respect of a suspected fraud, or they might carry out traditional
audits as done by external auditors.
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