INTERNAL AUDIT

& COST AUDIT

GROUP MEMBERS
SAGAR MOJIDRA

1401

SANTOSH GUPTA

1373

INTERNAL AUDIT

MEANING
Internal auditing is an independent, objective assurance and consulting activity designed
to add value and improve an organization's operations. It helps an organization
accomplish its objectives by bringing a systematic, disciplined approach to evaluate and
improve the effectiveness of risk management, control, and governance processes.

OBJECTIVES
The main objectives of internal audit are to provide assurance on the adequacy of the
whole control environment, advise at an early stage in the implementation of any system
developments or amendments to processes, development and implementation of
organizational policies.
Internal Audit provide assurance that the organizations values are met and that laws and
regulations are complied with. It ensures that financial statements and other published
information are accurate and reliable and that human, financial and other resources are
managed efficiently and effectively.
Internal audit also forms part of the wider anti-fraud and anti-corruption framework of a
company.

NEEDS OF INTERNAL AUDIT

Increased size and complexity of businesses.
Enhanced compliance requirements.
Focus on risk management and internal controls to manage them.
Unconventional business models.
Intensive use of information technology.
Stringent norms mandated by regulators to protect investors.
An increasingly competitive environment.

INTERNAL AUDIT ADDING VALUE TO ORGANISATION

Risk Management.
Providing Assurance Regarding Internal Controls.
Compliance.
Fraud Detection.
Consulting and Operations.

PRINCIPALS OF INTERNAL AUDIT

INTERNAL AUDIT AS PER COMPNAIES ACT, 2013

SECTION
The Companies(138)
Act 2013 provide statutory recognition this area has opened a scope of Chartered
Accountants and others professionals.

Section 138(1) of the act provide such class of companies as may be prescribed shall be required
to appoint an internal auditor, who shall be either be an Chartered Accountant or a Cost
Accountant Or such other professional as may be decided by the board to conduct internal audit
of the function and activities of the company.

APPLICABILITY OF INTERNAL AUDIT

Private Company
1. Turnover of 200 crore rupees or more at ant time during the preceding
financial year. OR
2. Outstanding loan or borrowings from banks or public financial institution
exceeding 100 crore or more at any point of time during the preceding
financial year.

APPLICABILITY OF INTERNAL AUDIT

FUNCTIONS OF INTERNAL AUDITOR

Ensure the correctness and completeness of accounts.
Examine the accounts to ensure regularity in expenditure.
Look into the propriety of the financial transaction.
Ensure that the resources expended by the executive have produced desired result.
Keep a constant vigil on all financial dealings and transactions in the organization.
Find out whether there have been any financial irregularity or malpractice in incurring
expenditure.
Point out mistakes and indicate how they can be rectified and avoided in future.
Verify the physical achievements of schemes/projects in the Institutions.

INTERNAL AUDIT PROCESS

1. PLANNING.
2. PERFORM AUDIT FIELDWORK.
3. RISK COMPOSITION.
4. RISK MANAGEMENT PROCESS.

Risk identification.

Risk qualification & prioritization.

Risk monitoring.

Risk mitigation & avoidance.

1. REPORT RESULTS.
2. FINALIZE AUDIT WORK.
3. REVIEW FINAL REPORT.
4. FINAL REPORT.
5. FOLLOW UP.

AVOID PITFALLS
Richard Chambers, CIA, has shared his experience about failure of internal audit
assignments. He has mentioned 6 main reasons for the failure of internal audit.
1.Not setting aside enough time to properly plan the audit work. Proper planning is the
glorious road to successful audit work.
2.Trying to audit too much, be relevant to risk. Keep one eye on relevance of work
being done with overall objectives of the audit.
3.Not involving the client or the auditee personnel.
4.Failing to augment the audit team with functional expertise.
5.Forgetting that the audit should ultimately add value.
6.Forgetting to follow the risks. New risks may emerge during the progress of audit work.
Change work plan according to them.

INTERNAL VS. EXTERNAL AUDITING

Sr.
No.

Internal Audit

External Audit

Internal auditors are appointed and removed by External auditors are appointed and removed by the
the management of the company any time.
shareholders directly during AGM.

The scope of I/A is much broader and covers all The scope of E/A is specified in the terms of reference
risks to a business entity.
signed with the company.

The objective of I/A is to help management in

risk management and add value by creating
efficiency in systems and finally obtain the
objectives of a business entity.

Internal auditors report to the audit committee.

The objective of E/A is to report on the truth and

fairness of the financial statements by examining
underlying records and based on the evaluation of
evidence gathered during the work
External auditors report to the shareholders
representatives, the members on the board of directors.
They directly interact with members while sitting in
AGM or EGM.

The report of external auditors is shared with the

The report of internal auditors is shared with
shareholders and after being published is shared with
management via audit committee.
public, in the case of listed company having share
capital from public

FORMAT OF INTERNAL AUDIT

REPORT

Period

Place

Audit Team
Supervision

Audit Scope
Audit Observations

1.

Audit Observation
System Weakness
Suggested Improvements

Transaction Vouching, Inventory System Controls,

Internal Controls, Intra Unit Transactions,
Excise Records,
TDS, FBT and Service Tax

COST AUDIT

INTRODUCTION
It is the detailed checking of the costing system, technique and accounts to
verify their correctness and to ensure adherence to the objective of cost
accountancy.
- ICMA LONDON

An audit of efficiency ,minute details of expenditure while the work is in

progress and not a post mortem. cost audit is mainly a preventive
measure ,a guide for management policy and decision, in addition to
being barometer of performance
- ICWAI INDIA

OVERVIEW
India was the first country in South Asia (and perhaps in the world) to make cost audit
mandatory for some of its business sectors. The Institute of Cost and Works Accountants
of India (ICWAI) refers to cost audit as an audit of efficiency of minute details of
expenditure while the work is in progress and not a post-mortem examination.
Objectives of cost audit include the determination and control of cost together with
providing data for making judgements and decisions on various matters, such as
operational efficiency.
GOI has added industries involved in the manufacturing of plantation products together
with the petroleum and telecommunication industries in 2002 to the list of industries
requiring mandatory cost audits.

OBJECTIVES
1. From the perspective of management.
2. From the perspective of shareholders.
3. From the perspective of the government.
4. From the perspective of customers.
5. From the perspective of cost accountants.

Two aspect of Cost Audit

Property audit

Efficiency audit

Audit is conducted to ensure that :

1. every rupee invested gives the maximum return.
2. Balancing of investment between diffferent functions of company designed to maximum return.

Difference between Financial Audit and Cost Audit

Financial Audit

Cost Audit

It is statutority compulsory under Companies

Act.

It is not compulsory except in certain cases

as provided under section 233B.

It covers all the financial transactions

recorded in financial books and financial
records

It covers only cost records and cost

accounts.

It aims to examine that the business

transactions have been recorded correctly

It aims to verification of cost accounts and

ensures the plan prepared in this
connection has been duly executed.

It is concerned with the past and historical in

nature

It concerned
approach.

Reporting the true and fair view of the

company's earnings and state of affairs.

Cost Auditor is required to report to the

management except statutory audit.

Financial aspect of the accounts is a matter of

concern.

Cost aspect of account is of main concern

It is concerned with the scrutiny of

reliability or otherwise of transactions.

It is concerned with the propriety and

efficiency of the transactions

with

forward

looking

COST AUDIT PROGRAMME

The Cost Auditor should pay his attention to the following records:
Record of Materials

Labour Records

Record of Overhead Charges

Depreciation

Work-in-Progress Records

Incomplete Records

Stores and Spare Parts Records

ADVANTAGES OF COST AUDIT TO MANAGEMENT

Provides reliable data for managerial decision

Helps management to regulates production

Acts as detection tool for error

Helps in comparing actual results and budgeted result

Helps in finding profitability of different unit

ADVANTAGES OF COST AUDIT TO CONSUMER

Reveals true cost of production.
Justify the price.

ADVANTAGES OF COST AUDIT TO GOVERNMENT

Helps tariff board
Help to measure and improve the efficiency of sick industrial unit.
Reveal fraudulent intention of management.
Help in pricing various commodities.
Helps in tax imposing decision.

ADVANTAGES OF COST AUDIT TO SHAREHOLDERS

Ensure proper recording of cost data.

Helps to evaluate managerial efficiency.

Ensures a true picture of companys state of affair.

COST AUDIT TECHNIQUES AND PROCEDURE

Ascertain internal control.

Vouching.

Checking and ticking.

Test checking.

Valuation and verification.

Questionnaires.

THANK YOU