Master of Business Administration- MBA Semester 3

MF0013 – Internal Audit & Control - 4 Credits

(Book ID: B1038)
Assignment Set- 1

Q.1 Write the differences between Auditing and Accounting?

Ans:

Audits are performed to ascertain the validity and reliability of information; also to provide an
assessment of a system's internal control. The goal of an audit is to express an opinion on the person /
organization / system (etc.) in question, under evaluation based on work done on a test basis. Due to
practical constraints, an audit seeks to provide only reasonable assurance that the statements are free
from material error. Hence, statistical sampling is often adopted in audits. In the case of financial audits,
a set of financial statements are said to be true and fair when they are free of material misstatements -
a concept influenced by both quantitative (numerical) and qualitative factors. Auditing is a vital part
of accounting. Traditionally, audits were mainly associated with gaining information about financial
systems and the financial records of a company or a business (see financial audit). However, recent
auditing has begun to include non-financial subject areas, such as safety, security, information systems
performance, and environmental concerns. With nonprofit organizations and government agencies,
there has been an increasing need for performance audits, examining their success in satisfying
mission objectives. As a result, there are now audit professionals who specialize in security
audits, information systems audits, and environmental audits. In financial accounting, an audit is an
independent assessment of the fairness by which a company's financial statements are presented by
its management. It is performed by competent, independent and objective person(s) known as auditors
or accountants, who then issue an auditor's report based on the results of the audit.

Accounting is defined (by the American Institute of Certified Public Accountants) (AICPA) as "the art of
recording, classifying, and summarizing in a significant manner and in terms of money, transactions
and events which are, in part at least, of financial character, and interpreting the results thereof. Today,
accounting is called "the language of business" because it is the vehicle for reporting financial
information about a business entity to many different groups of people. Accounting that concentrates on
reporting to people inside the business entity is called management accounting and is used to provide
information to employees, managers, owner-managers and auditors..

In other words, Accounting is a process of preparing the works, Auditing is a process of

evaluating & scrutinizing of the work prepared. In other words, accountants are in charged of the day-
to-day duties of marinating the accounts, implementing the board financial strategy, if any. At the end of
the period, accountant would produce Financial Statement, a summary report of the financial
performance throughout the period. Whereas, auditor conduct a check on the accuracy of the financial
statements, to ensure that there is no material misstatement of the financial statement prepared.

Accounting is concerned with the preparing of financial statements while auditing is concerned with
checking of financial statements. The purpose of accounting is to show the performance and financial
position of a business. The purpose of auditing is to certify the true and fair view of financial
statements.
Accounting requires that an accountant must have accounting knowledge while auditing work required
that an auditor must have accounting as well as auditing knowledge. Accounting is concerned with
current data. It is constructive in nature. Auditing is concerned with past data. It is analytical in nature.
The time period of accounting is usually one year. It takes one year to complete record. The time period
of auditing is usually less than one year. It may be completed within one month.
The accountant is permanent employee of the business. The auditor is an independent person. The
work of an accountant starts when the work of the book keeper ends. The work of an auditor starts
when the work of accountant ends. An accountant may not be a chartered accountant as per law. An
auditor must be chartered accountant for public companies. The accountant has no liability for
preparing final accounts. The auditor has liability after presenting audit report.

Accounting is done on a day-to-day basis in business. It is the recording of transactions, the accounting
for depreciation, debt, revenue, etc., that are all a part of reporting the company's financial activities.

An audit is a thorough review of the records that have been generated by the day-to-day accounting.
An audit can be performed by a company's own staff (an internal audit) or by an outside firm (an
external audit.) External audits can be extremely time-consuming and harrowing for the internal staff.
The auditors are looking for any discrepancies, poor business practices, non-compliance with state and
federal law (in the U.S.), tax reporting deficiencies, and evidence of fraud or collusion, among other
things. In the U.S., a publicly-held company must undergo an external audit at least once a year and
must produce detailed financial reports that are submitted to the government and published as a matter
of public record.

Q.2 Write the factors to be considered while drawing up the audit Programme an auditor should
give attention?

Ans: These factors are:

Quality in planning: planning refers to the detailed audit plans and subsequent audit programmes. No reference
is being made to the macro level of planning that an SAI may carry out.

The preparation of an audit plan should take into account risk and materiality based on an
understanding of the audited entity and its business. The plan should set out how and when the audit
will be conducted and how sufficient and appropriate evidence is obtained in order to enable to
conclusions to be drawn and support the audit opinion.

Requisites and measures to ensure quality control

The audit plan is divided into a number of detailed tasks, which are assigned to individual team
members. To ensure quality control during the planning process, measures could include direction,
supervision and review procedures to ensure that the audit task referred to above is adequately carried
out.

Possible Checklist:

o Ensuring that planning is carried out in accordance with auditing policies, standards, manuals,
guidelines and practices.
o Obtaining relevant information regarding laws and regulations that might have a significant
impact on the audit objectives;
 o Preliminary investigative audit (an audit that aims at conducting an initial study of specific issues
to help prepare an audit task plan);
o Determining objectives and scope of audit;
o Identification of sources (e.g. media, findings of audited entity’s internal audit, inspection and
other control bodies) as background for audits;
o Determining list of activities for audit;
o Highlighting of special problems foreseen when planning the audit;
o Ensuring that members of audit team have a clear and consistent understanding of the audit
plan;
o Follow-up is made of issues in previous related audit;
o Understanding the finance, accounting and other relevant functions of the organisation;
o Identification of key elements of internal control system of auditee;
o Using appropriate analytical procedures;
o Identification and analysis of relevant ratios and comparative figures;
o Identification of trends or deviations from predicted amounts;
o Identification of sampling method and sampling population;
o Choice of relevant performance indicators;
o Assessment of inherent and controls risks;
o Establishment of materiality criteria and thresholds;
o Establishment of degree of confidence decided for audit;
o Choice of appropriate experts/consultants;
o Preparation of budget and schedule for audit;
o Assessment of reasonable resources necessary to undertake audit;
o Assessment of staff requirements and team allocated for audit;
o Investigation and settlement of queries raised during review stage;
o Drawing up, approval, review of audit programme by Head of Division;
o Checklists used in the process of (a) drawing up, (b) issuing an opinion about, (c) approving an
audit task plan;
o Other procedures and practices used in the planning phase of an audit;
o Practices to continuously enhance quality control procedures in the planning phase of audit.

Quality in Execution

The field work has to be performed in accordance with the approved audit plans and should result in
sufficient appropriate evidence being obtained to determine with reasonable confidence whether or not
financial statements are free from material misstatements and irregularity or that facts relating to
VFM/performance audits are scientifically and/or fairly arrived at.

The following methodologies and practices are used in the execution of audits: (European
Implementing Guidelines for the INTOSAI Auditing Standards)

i. Sources: Methods and Nature of the reliability and evaluation of audit evidence include

Sources:

Generated by auditor directly

Obtained by third party
Obtained from auditee

Methods:

Inspection
Observation
Inquiry and Confirmation
Computation
Analysis of financial systems

Nature:

Documentary, visual or oral (the reliability of oral evidence, in particular, depends upon the source)

ii. Audit approach includes

Objectives

Regularity (financial and compliance)

Performance or value for money (economic, effective, efficient)

Testing

Systems Based Approach (testing of internal controls)

Direct Substantive Testing

iii. Study and examination of internal controls and tests of control

iv. Information Systems

General Installation Controls

Planning, staffing, reporting and segregation of duties

Security awareness and policy of both hardware and software
Continuity and disaster recovery
Management of IT assets and use of external service providers

Application Audits

Organisation and Documentation

Input
Processing
Data Transmission
Standing Data
Output

v. Audit Sampling

vi. Analytical Procedures

Trend Analysis
Ratio
Analysis

vii. Using the work of other auditors and experts

viii. Documentation :

This is particularly important for supervision, review and quality assurance. Working papers – current
and permanent files; confidentiality; retention procedures.
ix. Performance Audit Methodology

Data Gathering Techniques

File examination
Audit sampling
Secondary analysis/literature search
Surveys
Interviews
Focus Groups
Benchmarking

Techniques for Information Analysis

Programme Logic Model

Descriptive Statistics to understand data distribution
Regression analysis
Cost-benefit analysis
Cost-effectiveness
Meta evaluation

Requisites and measures to ensure quality control in execution/field work

The field work, which would have been appropriately planned during the planning stage, should be
assigned to individual team members. To ensure quality control during the execution/fieldwork process,
measures could include direction, supervision and review procedures to ensure that team members
understand their assigned tasks and that the chosen audit methodologies are adequately carried out.

Possible checklist

o Execution of audit is carried out in accordance with auditing policies, standards, manuals,
guidelines and practices of SAI;
o Audit examiners have a sound understanding of techniques and procedures such as inspection,
observation, enquiry, etc. to collect audit evidence;
o All phases of audit have been carried out as planned and approved;
o Valid explanations are available for non-implementation of any phases of audit
o Appropriate approval exists for significant deviations that have taken place from approved audit;
o Staff resources used for audit are largely in line with those planned in terms of time, grade of
staff and expenses entailed;
o Justification for material deviations for budgeted staff resources;
o Appropriate audit techniques and audit procedures used to fulfil each audit objective in order to
provide for effective audit evidence
o Use of Computer Assisted Aids, Techniques and Tools CAATTs);
o All envisaged tests for evaluation and reliability of internal controls are used;
o Appropriate analytical procedures are used and the reliability, independence and quality of
relevant supporting data is assessed;
o Sampling methods are used according to SAI’s manuals;
o All tests of transactions clearly indicate audit objectives, adequately explain nature and extent of
audit work and provide an overall conclusion as to results of audit work;
o Audit steps and procedures have been designed to obtain sufficient, competent and relevant
evidence;
o Full investigation is made of all queries during audit;
o Existence of adequate working papers in respect of:
• Evaluation of internal controls systems
• Audit of routine procedures
 • Tests of controls
• Analytical review
• Substantive tests;
• Audit of computer-based applications.
o Working papers are appropriate cross-referenced;
o Audit completion checklists are comprehensive and have been completed, approved and duly
evidenced;
o Work of consultants and other experts has been properly monitored;
o Other procedures and practices used in the execution phase of an audit; and
o Practices to continuously enhance procedures in the execution phase of audit.

Quality in Reporting

Typical methodologies for carrying out audit tasks

Reports both for regularity and VFM audits should be in standard format. In terms of European
Implementation Guidelines (Annexe 1 of No. 31), the auditor must have specific regard to the following
aspects of the report:

• Title
• Signature and date
• Objectives and scope
• Completeness
• Addressee
• Identification of subject matters
• Legal basis
• Compliance with standards
• Timeliness

Audit Reports on specific financial statements contain an Unqualified Opinion (Clean Report), if no
material shortcomings are detected and the Financial Statements “Properly Represent” (for Accounts
on Cash-Based System) or “True and Fair View” (for Accounts on Accrual Based System). If an
unusual or important matter (“Emphasis of Matter”) needs to be included in the Audit Report to enable
the reader to correctly understand the Financial Statements, this should be contained in a separate
paragraph from the Audit Opinion in order not to give the impression that the Audit Report is not
qualified.

Q.3 Write the Guidelines for internal check for Big Departmental stores?

Q.4 Distinguish between internal control, internal check and internal Audit?

Q.5 Write the essential requirement of Computer Assisted

Auditing Techniques (CAAT)?

Q.6 Write the Audit programme in an EDP environment?

Master of Business Administration- MBA Semester 3

MF0013 – Internal Audit & Control - 4 Credits
(Book ID: B1038)
Assignment Set- 2

Q.1 What are the essential qualities and qualification of an auditor (10 Marks)
should possess for efficient discharge of duties
Q.2 Write the short notes on (10 Marks)

1. Cash Audit

2. Special Audit

3. Periodical Audit

4. Social Audit

5. Partial Audit

Q.3 “Discuss Continuous Audit Double edged Weapon” (10 Marks)

Q.4 Explain the Auditor in relation with Computer based system? (10 Marks)
Q.5 List of accounting standards formulated by the Accounting (10 Marks)
standards Board of India.
Q.6 Write the CAAT or special Techniques for Auditing in EDP environment? (10 Marks)

Master of Business Administration- MBA Semester 3

MF0004 – Internal Audit & Control - 2 Credits
Assignment Set- 1 (30 Marks)
Note: Each question carries 10 Marks. Answer all the questions.
Q.1 Discuss Is Auditing is a luxury. (10Marks)
Q.2 What is the position of the Auditor in relation with Internal Control? (10Marks)
Q.3 Write the Guidelines for internal check for Sales Counter? (10 Marks)
Master of Business Administration- MBA Semester 3
MF0004 – Internal Audit & Control - 2 Credits
Assignment Set- 2 (30 Marks)
Note: Each question carries 10 Marks. Answer all the questions.
Q1. Explain the meaning of flow chart. Explain different types of flow chart
Q2. What are the mandatory standards of ICAI?
Q3. What is SOX? Explain the main features of SOX.