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ASSIGNMENT
DRIVE SUMMER 2014
PROGRAM MBADS – (SEM 3/SEM 5) / MBAN2 / MBAFLEX – (SEM 3) /
PGDFMN – (SEM 1)
SUBJECT CODE & NAME MF0013 - INTERNAL AUDIT & CONTROL
SEMESTER 3
BK ID B1733
CREDITS 4
MARKS 60
Note: Answer all questions. Kindly note that answers for 10 marks questions should be
approximately of 400 words. Each question is followed by evaluation scheme.
Q.1 Define and explain the term auditing. “Personal qualities of an auditor are important for the
successful conduct of audit”. Comment
Ans : Definition of auditing :
The term auditisderivedfromthe Latinterm‘audire,’ whichmeanstohear. In early days an auditor
usedto listentothe accountsread over by an accountant in order to check them . Auditing is as old
as accounting.It wasin use inall ancientcountriessuchasMesopotamia, Greece, Egypt. Rome, U.K.
and India.The Vedascontainreferencetoaccountsand auditing.Arthasashthraby Kautilya detailed
rules for accounting and auditing of public finances
Explanation of auditing :
Auditing is such an examination of books of accounts and
Q.2 Write the key objectives of a good internal audit system. Narrate the points of dissimilarities
between external audit and internal audit.
Ans : Key objectives of a good internal audit system :
1. To determine whether controls over financial and operating data provide managers with
reasonable assurance that the financial and operating data is accurate and reliable (i.e., that
information gathering and reporting has been properly planned, organized and directed).

2. 2. To determine whether controls over compliance with policies, procedures, plans, laws and
regulations provide managers with reasonable assurance that proper compliance actually occurs
(i.e., that compliance activities have been properly planned, organized and directed).
3. To determine whether controls over assets provide managers with reasonable assurance that
assets exist and are protected against loss
Q.3 Give the role of internal auditor in the Company’s Management. List down the duties of
auditor Under Section 581ZG.
Ans : Role of internal auditor in the company’s management :
The main role andresponsibilitiesof the auditorshouldbe setoutinwritten terms of reference and
should include:
• to monitor the integrity of the financial statements of the company, and any formal
announcements relating to the company’s financial performance, reviewing significant financial
reporting judgements contained in them;
• to reviewthe company’sinternal financialcontrolsand, unless expressly addressed by a separate
board risk committee composed of independent
Q.4 The effectivenessofthe internal control systemcan be ensured if the important aspects of the
company’s operations are kept in mind. Explain the characteristics of an effective internal control
system. Write the elements of internal control.
Ans : Characteristics of an effective internal control system :
1. Control Environment:
The control environmentisthe company'sattitude towardinternal controls.Knownas"tone-at-the-
top,"the control environmentis a necessary condition for effective internal control, because even
the best-designedsystemscanbe thwartedif management overrides the controls that are in place.
Indicatorsof an effectivecontrol environment include having a whistleblower hotline or discipline
policies that take violations of internal control seriously. Management override of controls or
shortcuts are signs that the control environment may be deficient.
2. Risk Assessment:
Q.5 Describe general EDP controls. Explain the appraisal of accounting system and related internal
control.
Ans : General EDP controls :

3. These controlsapplytoa wide range of expressions that systematically threaten the integrity of all
applicationsprocessedwithinthe ComputerBasedInformationSystem(CBIS).Following are the sub
divisions of general controls:
Operating system controls
1. Operating System allows users to share and access common computer resources. It's the
computer's control program.
2. If OS‟s integrity is compromised, controls within individual accounting applications may
be neutralized.
3. Since the OS is common to all users, the larger the computer facility, the greater the scale of
potential damage.
Q.6 Explain the internal control systems in insurance companies. Write down about the reporting
internal control weaknesses.
Ans : Internal control systems in insurance companies :
The following principles will be applicable to insurance undertakings’ Internal Control:
1. Control culture :
The board of directors is responsible for promoting a high level of integrity and for establishing a
culture within the company that emphasises and demonstrates to all levels of personnel the
importance of internal control. Management is responsible for the implementation of the internal
control Culture and principles. All personnel need to understand their role in the internal control
process and be fully engaged in the process.
2. Risk assessment :
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