Internal control is a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws and regulations
This presentation examines ICs and their effectiveness.
Internal control is a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws and regulations
This presentation examines ICs and their effectiveness.
An internal audit is designed to review what a company is doing in order to identify potential threats to the organization's financial health and profitability and to make suggestions for mitigating the risk associated with those threats.
An exercise whose objective is to enable auditors to express an opinion on whether the financial statements give a true and fair view (or equivalent) of the entity’s affairs at the period end and of its profit or loss (or income and expenditure) for the period then ended and have been properly prepared in
accordance with the applicable reporting framework (e.g. relevant legislation and applicable accounting standards) or where statutory or other specific requirements prescribe the term, whether the financial statements “present fairly”.
advantages of management account,definition,functions of management account,limitations of management account,management account,meaning,nature of management account,objectives of account,scope of management account
An internal audit is designed to review what a company is doing in order to identify potential threats to the organization's financial health and profitability and to make suggestions for mitigating the risk associated with those threats.
An exercise whose objective is to enable auditors to express an opinion on whether the financial statements give a true and fair view (or equivalent) of the entity’s affairs at the period end and of its profit or loss (or income and expenditure) for the period then ended and have been properly prepared in
accordance with the applicable reporting framework (e.g. relevant legislation and applicable accounting standards) or where statutory or other specific requirements prescribe the term, whether the financial statements “present fairly”.
advantages of management account,definition,functions of management account,limitations of management account,management account,meaning,nature of management account,objectives of account,scope of management account
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This contents in this document is for academic purpose and those who are practicing internal and external audits. It is open for recommendations and opinions.
The most comprehensive definition of internal audit is given by the IIA, USA. It is,
"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."
The purpose of the presentation is to provide clarification for a better understanding of what internal audit definition, objectives, functions, stages and reporting are all about? What difference does it make in the presence of an external audit? How different is its scope from that of the external audit? How internal audit standards contribute to better performance of internal audit work and its reporting to the Board or Audit Committee?
. In accounting and auditing, internal control is a process for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.
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Voluntary Closure: The owners may decide to close the company due to reasons like reaching business goals, facing losses, or merging with another company.
Deadlock: If shareholders or directors cannot agree on how to run the company, a court may order a winding up.
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Creditors' Voluntary Winding Up: The company is insolvent and creditors will be prioritized in receiving payment from the sale of assets.
Compulsory Winding Up: This is initiated by a court order, typically at the request of creditors, government agencies, or even by the company itself if it's insolvent.
Process of Winding Up:
Appointment of Liquidator: A qualified professional is appointed to oversee the winding-up process. They are responsible for selling assets, paying off debts, and distributing any remaining funds.
Cease Trading: The company stops its regular business operations.
Notification of Creditors: Creditors are informed about the winding up and invited to submit their claims.
Sale of Assets: The company's assets are sold to generate cash to pay off creditors.
Payment of Debts: Creditors are paid according to a set order of priority, with secured creditors receiving payment before unsecured creditors.
Distribution to Shareholders: If there are any remaining funds after all debts are settled, they are distributed to shareholders according to their ownership stake.
Dissolution: Once all claims are settled and distributions made, the company is officially dissolved and removed from the business register.
Impact of Winding Up:
Employees: Employees will likely lose their jobs during the winding-up process.
Creditors: Creditors may not recover their debts in full, especially if the company is insolvent.
Shareholders: Shareholders may not receive any payout if the company's debts exceed its assets.
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Internal control
1. INTERNAL CONTROL
Internal control is a process effected by plan
management, BOD and other personnel, and those
charged with governance, and designed to provide
reasonable assurance regarding the achievement of
objectives in the following categories :-
reliability of financial reporting.
Compliance with laws & regulations.
Effectiveness & efficiency of operations.
Internal Control is also necessary for survival of an
organization's success.
2. A system of controls, financial and otherwise
established by management in order to carry on the
business of the company in an orderly and efficient
manner to ensure the adherence to management
policies, safeguard the assets, and secure as much as
possible the completeness of an internal control system
– De Paula
Internal controls as a system comprising of controls
environment and procedures. It includes polices and
ways adapted by management of an enterprise to assist
it in achieving its objectives – The International
standards of Auditors.
3. INTERNAL CONTROL OBJECTIVES
Authorization
Completeness
Accuracy
Validity
Physical Safeguards and Security
Error Handling
Segregation of Duties
5. ADVANTAGES OF INTERNAL CONTROL
Increase in operational efficiency
Accurate Recording
Safeguarding Assets
Compliance
Protection of Employees
6. INTERNAL CHECK
Checks on the day-to-day transactions which operate
continuously as a part of the routine systems.
The main objective of internal check is prevention of
errors and frauds and/or detection of errors and frauds
at the earliest.
It also ensures efficiency of the accounting system
followed by the organization and enables easy
preparation of financial statements.
Internal check discourages fraud and collusion among
employees by instilling a fear of detection in their minds.
7. DIFFERENCE BETWEEN INTERNAL
CHECK AND INTERNAL AUDIT
Basis Internal check Internal Audit
Way of checking Automatic specially
Cost involvement No yes
Time of checking When work is being done After the work is done
Thrust of system To prevent errors To detect error & frauds
8. DIFFERENCE BETWEEN INTERNAL
CONTROL AND INTERNAL AUDIT
Basis Internal control Internal audit
Meaning Independent &
consulting activity
designed to add value &
improve organization’s
operations.
System of control
established by the
management to carry on
business in efficient
manner.
Nature Broader Concept Narrower concept
Scope Compulsory As per suitability of the
organization
Objectives To prevent the occurrence
of fraud
A backward looking
activity
9. TECHNIQUES OF INTERNAL CONTROL
SYSTEM
Preventive Controls techniques- designed to discourage
errors or irregularities from occurring. They are proactive in
nature that helps to ensure departmental objectives are being
met. Ex-
Segregation of Duties
Approvals, Authorizations, and Verifications
Security of Assets
Detective Controls techniques- designed to find errors or
irregularities after they have occurred. Ex-
Reviews of Performance
Reconciliations
Physical Inventories
Internal Audits
10. AUDIT TESTING
An audit test is a procedure performed by either an
external or internal auditor in order to assess the
accuracy of various financial statement assertions. The
two common categorizations of audit tests are
substantive tests and tests of internal controls
A substantive audit test is a direct test that validates a
financial statement balance, while internal control tests
are focused on key controls, such as management
reviews or standardized templates that are designed
to prevent and detect material misstatements
Audit tests typically are performed on a sample basis
over an existing group of similar transactions. Sampling
approaches can either be statistical or non-statistical.
11. SAMPLING IN AUDIT TESTING
a process of selecting a subset of a population of items for
the purpose of making inferences to the whole
population.
Need for Audit Sampling
1. Developing a consistent approach to audit areas;
2. Providing a framework within which sufficient audit
evidence is obtained;
3. Forcing clarification of audit thinking in determining
how the audit objectives will be met;
4. Minimizing the risk of over-auditing; and
5. Facilitating more expeditious review of working papers
12. STATISTICAL SAMPLING IN AUDIT
Statistical sampling involves the random selection of a
number of items for inspection and is endorsed by the
accountancy bodies.
In statistical sampling, each item has a calculable chance of
being selected.
Statistical sampling allows an auditor’s judgment to be
concentrated on those areas of the audit where it is most
needed.
It allows the quantification of key factors and the risk of
errors.
This is not to suggest that statistical sampling methods
remove the need for professional judgment, but rather that
they allow elements of the evaluation process to be quantified,
measured and controlled.
13. INTER-FIRM COMPARISON
It is technique of evaluating the performance, efficiency,
costs and profits of firms in an industry.
It consists of voluntary exchange of information/data
concerning costs, prices, profits, productivity and overall
efficiency among firms engaged in similar type of operations
for the purpose of bringing improvement in efficiency and
indicating the weaknesses. Such a comparison will be possible
where uniform costing is in operation.
An inter-firm comparison indicates the efficiency of
production and selling, adequacy of profits, weak spots in the
organization, etc. and thus demands from the firm’s
management an immediate suitable action.
Such a comparison may be carried out in electrical industry,
printing firms, cotton spinning firms, pharmaceuticals, cycle
manufacturing, etc.
14. INTRA-FIRM COMPARISON
comparison among different units/products/strategic
business unit (SBU) of a firm.
This comparison is possible only when uniform
costing methods and practices are being adopted by all
units and SBUs.
Intra firm comparison helps the management in
identifying the units/Strategic SBUs which have not been
performing as per the internal benchmark or standards
achieved by other units SBUs.
This comparison is difficult sometime when the firm is
dealing in different product/sectors and their working
conditions are significantly different.
15. AUDIT IN DEPTH
checking a transaction extensively from origin to
end.
It is an audit technique which is used to evaluate the
effectiveness of internal control system in an
organization.
It is used in investigation exercises whereby the
objective is to thorough examination of transactions
or records.
Also known as vertical vouching as against
horizontal vouching.