An examination of a companys accounting records and books conducted by an outside professional in order to determine whether the company is maintaining records according to generally accepted accounting principles.
Skill & Competence The basic principle of audit is that a competent and skilled person should conduct it. only a qualified for an auditor is that person can act as an auditor. The basic qualification for an auditor is that the person should be a chartered accountant. This is required to achieve high standards and expertness in the work of an auditor. Confidentiality During the work of audit, auditor comes across many important and sensitive information regarding his clients work and systems. It is required that he should not part with such information. He should maintain strict confidentiality with regard to such information. Integrity
Auditor should be honest and sincere in his work. He occupies the position of faith with the clients. It is required that he should do justice to his work and profession. Independence Auditor will be in a position to do his job successfully if he works independently Objectivity Auditor will be in a fair and honest and should work with objectivity. He should not allow personal bias to shadow his work. Responsibility Auditor should work with responsibility. He should exercise due care and diligence
A financial audit, or more accurately, anaudit of financial statements, is theverification of the financial statements of alegal entity, with a view to express an auditopinion. The audit opinion is intended toprovide reasonable assurance that thefinancial statements are presented fairly, inall material respects, and/or give a true andfair view in accordance with the financialreporting framework.
The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements. Financial audits are typically performed by firms of practicing accountants who are experts in financial reporting. The financial audit is one of many assurance functions provided by accounting firms.
Many organizations separately employ or hire internal auditors, who do not attest to financial reports but focus mainly on the internal controls of the organization. External auditors may choose to place limited reliance on the work of internal auditors.
Rights to have access to the Books of Accounts – An auditor has the right of access to the books of accounts, all vouchers, and all documents at all times and kept anywhere. He can check the books of accounts and related vouchers any time during working hours even without giving prior information to the directors or to any officer of the company.
Right to get information and Explanations- Auditor has the right to get any information and necessary explanations from directors, employees and officers of the company, which he thinks necessary for the discharge of his duty as an auditor. If any information is not supplied to him, he can write it in his report. Right to inform to the Members – If during the course of his audit he comes to notice that certain deficiencies are present in the books of accounts he can suggest remedies to remove them. However if his suggestions are not followed, he has a right to inform about it to the members.
Right to visit Branches- The branch accounts are to be audited as per the requirements of the Companies Act, 1956. Either it should be audited by the company’s auditor or by another qualified auditor. If the Branch Accounts are not audited by other auditor then the Company Auditor has the right of access to all the books of account vouchers and documents of the branches at all times and he also has the right to visit the branch. However, in case of a banking company he can visit only branches in the country and he cannot compel for visiting the foreign branches. He can call the audited accounts of the foreign branches and would incorporate those accounts in his audited accounts.
Right to receive notice and other documents regarding General Meeting and attend them – Auditor of the company has a right to receive the notice of the General Meeting. He also has a right to receive any communication regarding the general meeting. He also has a right to attend the general meeting. He can also speak on the matters concerning his job ie. accounts of the company.
Right to be indemnified – Auditor has the right to be indemnified out of the assets of the company for any liability, which he may incurs on himself in defending any civil or criminal proceedings if he is proved honest and judgment is in his favour. Right to have Advice – Auditor has the right to receive technical and legal advice necessary to discharge his duty. Right to sign the Report – Auditor has the right to sign the audit report of the Company. He also has the right of submitting the audit report. Right to receive the Remuneration – The auditor has the right to receive remuneration that was fixed for his work. He can exercise his right when the work is complete. Right of lien – Auditor has the right of lien also to recover his remuneration.
Professionals called internal auditors are employed by organizations to perform the internal auditing activity. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organizations operations.
It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluateAnd improve the effectiveness of risk management, control, and governance processes.
Internal auditing is a catalyst for 1. improving an organizations effectiveness 2. efficiency by providing insight and 3. recommendations based on analyses and assessments of data and business processes.
efficiency of operations the reliability of financial reporting deterring and investigating fraud, safeguarding assets, compliance with laws and regulations.
(a) independence The internal auditor should have the independence in terms of organisational status and personal objectivity which permits the proper performance of his duties(b) staffing and training The internal audit unit should be appropriately staffed in terms of numbers, grades, qualifications and experience, having regard to its responsibilities and objectives. The internal auditor should be properly trained to fulfil all his responsibilities
(c) relationships The internal auditor should seek to foster constructive working relationship and mutual understanding with management, with external auditors, with any other review agencies and, where one exist, the audit committee(d) due care The internal auditor should exercise due care in fulfilling his responsibilities(e) planning, controlling and recording The internal auditor should adequately plan, control and record his work(f) evaluation of the internal control system The internal auditor should identify and evaluate the organisations internal control system as a basis for reporting upon its adequacy and effectiveness
(g) evidence The internal auditor should obtain sufficient, relevant and reliable evidence on which to base reasonable conclusions and recommendations (paragraphs 63 to 69).(h) reporting and follow-up The internal auditor should ensure that findings, conclusions and recommendations arising from each internal audit assignment are communicated promptly to the appropriate level of management and he should actively seek a response. He should ensure that arrangements are made to follow up audit recommendations to monitor what action has been taken on them
(a) The internal auditor, notwithstanding his employment by the organisation, should be free from any conflict of interest arising either from professional or personal relationships or from pecuniary or other interests in an organisation or activity which is subject to audit.(b) The internal auditor should be free from undue influences which either restrict or modify the scope or conduct of his work or over-rule or significantly affect judgement as to the content of the internal audit report.
c) The internal auditor should not allow his objectivity to be impaired when auditing an activity for which he has had authority or responsibility.(d) An internal auditor should be consulted about significant proposed changes in the internal control system and the implementation of new systems and make recommendations on the standards of control to be applied. This need not prejudice the auditors objectivity in reviewing those systems subsequently.(e) An internal auditor should not normally undertake non-audit duties but where he does so, exceptionally, he should ensure that management understands that he is not then functioning as an internal auditor.
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