AUDIT AS A CONTROL TOOL

TYPES OF AUDIT

I. II. III. IV.

MANAGEMENT AUDIT FINANCIAL AUDIT INTERNAL AUDIT COST AUDIT

NAMES: ANUSHREE AMRUTA ARPIT MITEN PRAJAKTA POONAM TANMAYA

INDEX
Slide 1 2 3 Content Title along with names. Introduction to Audit Definition of Audit

4
5 6 7

Classification of Audit
Advantages of Audit. Tools & Technique of Audit Internal Audit-Meaning & Definition

8
9 10 11

Objective of Internal Audit

Internal Audit as a control Tool Financial Audit-Meaning & Definition Stages of Financial Audit

12
13 14

Objective of Financial Audit

Difference between Internal & Financial Audit Meaning & Definition of Management Audit.

Index Conti..
Slide 15 16 Content Objective of Management Audit Scope of Management Audit

17
18 19 20 21 22 23 24 25 26 27 28 29

Steps in Management Audit

Management Audit as Control Tool Cost Audit- Meaning Cost Audit Definition Objective of Cost Audit Types of Cost Audit Cost Audit as a Control Tool Areas of Cost Audit Scope of Cost Audit Difference between Cost Audit & Management Audit Difference between Financial Audit & Management Audit Difference between Financial Audit & Cost Audit Question Bank

INTRODUCTION
The Term Audit Is Derived From The Latin Word Audire Which Literally Means To Hear Audit Is Defined As A Formal Examination Of An Individual Or Organizations Accounting Records Financial Situations Or Compliance With Some Other Set Of Standards As Per Auditing And Accounting Standard(AAS-1) Auditing Is The Independent Examination Of Financial Information Of Any Entity Whether Profit Oriented Or Not And Irrespective of its size or legal firm, When Such An Examination Is Conducted With A View To Expressing An Opinion Thereon

CLASSIFICATION OF AUDIT
TWO CATEGORIES OF CLASSIFICATION

(A) ACCORDING TO ORGANIZATIONAL STRUCTURES

I. II. III. IV. STATUTORY AUDIT PRIVATE AUDIT GOVERNMENT AUDIT INTERNAL AUDIT

(B) FROM PRATICAL POINT OF VEIW I. II. III. IV. V. VI. VII. CONTINUOUS AUDIT ANNUAL/PERODICAL/FINAL/COMPLETED AUDIT BALANCE-SHEET AUDIT CASH AUDIT INTERIM AUDIT MANAGEMENT AUDIT PERFORMANCE AUDIT

ADVANTAGES OF AUDIT
DETECTION AND PREVENTION OF ERRORS AND FRAUDS CREATES RELIABILTY AND AUTHENTICITY ACCEPTABLE BY AUTHORITIES SPEEDY PROCESSING OF LOANS FACILITATES CALCULATION OF GOODWILL

USEFUL TO COMPARE FINANCIAL PERFORMANCE

IDENTIFIES WEAKER AREAS

TOOLS AND TECHIQUES OF AUDIT

SURVEY QUESTIONNAIRE

FOCUS GROUPS
INTERVEIW DIRECT OBSERVATION

INTERNAL AUDIT
MEANING : Internal Auditing Is Critical Evaluation Of The Functioning Of Various Departments Of Enterprise. Internal Audit Implies On Audit Of Books Of Accounting By The Employees Of The Organization Itself. Internal Auditing Is A Profession And Activity Involved In Helping Organizations To Achieve Their Stated Objective DEFINITION: According To Institute Of Chartered Accountant Of India [ICAI] Internal Auditing Is A Separate Component Of Internal Control Established To Determine Whether Other Internal Controls Are Well Designed And Properly Operated.

INTERNAL AUDIT

OBJECTIVES OF INTERNAL AUDIT

Adequacy And Reliability Of Management Information And Control System Adequacy, Accuracy And Effectiveness Of Internal Control System In Relation To Operational Activities Safeguarding Assets Utilization And Accounting Apprising The System And Procedure Achievement Of Management Objectives Through Performance Appraisal Compliance With Statutory Laws And Rules

PRINCIPLES OF INTERNAL AUDIT AS CONTROL TOOL

Integrity Objective And Independence Confidentiality Due Professional Care Skills And Competence Worked Performed By Other Documentation Planning Evidence Internal Control And Risk Management Reporting

Financial audit & Statutory Audit

Financial Audit: It is an audit of financial statement of a company or any other legal entity resulting in the publication of independent opinion on whether or not those financial statements are relevant, accurate, complete & fairly presented.

Statutory Audit :This is a type of financial audit which creates an obligation for every private limited or public limited company to have its accounts audited every year by Chartered Accountants.

Stages of Financial Audit

1. 2. 3. 4. Planning and Risk Assessment. Internal Control Testing Substantive Procedure Finalization

Objective of financial Audit

1. Prevention of Fraud, waste & detection of errors. 2. Assessing compliance with accounting procedure laid down. 3. Plugging the loopholes in the financial management policy. 4. Verifying whether documentation & work is in conformity with internal control system. 5. Compliance with the companies order 2003 [C(AR)0,2003] 6. Compliance with statutory laws & rules in respect of financial & accounting matters.

Difference between Internal Audit and Financial Audit.

Internal Audit Appointment Qualification Objects Scope Remuneration Report Removal Management makes the appointment. No Fixed Qualification. Detection and Prevention of Frauds. Fixed by mutual consent of auditor & management. Management fixes the remuneration. Submits report to the management. Management can remove Internal Auditor Financial Audit Appointed by different authorities. Practicing Chartered Accountant required. Showing true & fair view of affairs of the organization. Fixed by Companies Act 1956. Remuneration is Fixed by the appointing authorities. Submits reports to the Share Holders. Requires Specific procedure for removal.

Management Audit
Meaning: Management Audit attempts to evaluate the performance of various management process & functions. It is an Audit to examine, review & appraise the carious policies & actions of management on the basis of certain standards. Definition: According to William P Leonard The Management Audit may be defined as a comprehensive & constructive examination of an organization structure of a company & its plans & objectives, its means of operation & its use of humans & physical facilities.

Objective of Management Audit

Objectives 1.Business managed efficiently. 2.Improvements and recommendations. 3.Increasing managerial efficiency. 4.Effective and efficient discharge of duties and responsibilities. 5.Assess whether it can achieve the overall business objectives or not.

Scope of Management Audit

Scope
1.Accounts & Finance 2.Management Information 3.General Administration 4.Inventory Control 5.Personal Management

Steps in Management Audit

Identify the objectives Breakdown the objectives

Assess the Adaptability

Evaluation of Performance Suggestions & Reviews

Management Audit as a control tool

1. Helps management in framing basic policies for the organization & in defining objectives. 2. Helps in preparing achievable plan for the organization. 3. Helps in reviewing management information system for decision making. 4. Assist in Analyzing SWOT of the organization & assist in making organization stronger.

Cost Audit
Meaning: Cost Auditing is a auditing of cost records to comment whether they are properly maintained so as to give a true & fair view as the cost of production, cost of sales & margin of product. It is a critical examination of maintenance of cost records to express an opinion on the adequacy, truth & fairness, compliance to cost accounting principle.

Cost Audit
Definition: According to ICWAI cost audit as an audit to efficiency of minute details of expenditures while the work is in progress & not a post mortem examination. Financial audit is a Fait accompli. Cost Audit is mainly a preventive measure, a guide for management policy& decision in addition to being a barometer of performance.

Objective of Cost Audit

1. 2. 3. 4. Protection Constructive Appraisal Improved Productivity Pre-Audit

Types of Cost Audit

1. Propriety Audit 2. Efficiency Audit

Cost of Audit as a Control Tool

a) For the management i. To detect, errors, frauds, inconsistencies. ii. It highlights weakness in the system & procedures. iii. Establishes a reliable check in valuation of closing stock & WIP. b) i. ii. c) i. For Consumer Helps Government to fix fair selling price of consumer goods. Does not allow producers to make excess profits. For Shareholders Proper valuation of closing stock & WIP & reveals true picture of profitability.

Areas of Cost Audit Programme

I. Material II. Stores & Spare parts III. Work in Progress IV. Depreciation V. Labour VI. Overheads VII.Capital utilization

Scope of Cost Audit

Sec 209 of Companies Act 1956: 1. Companies engaged in production, processing, manufacturing or mining activates to maintain in their books of accounts certain particulars. 2. Government has powers to order for the audit of cost account of a company falling under the purview of sec 209 3. Statutory Cost Audit can be conducted only by a qualified cost accountant.

Difference between Cost Audit & Management Audit

Sr No 1 2 Cost Audit Cost Audit is verification of cost records. Cost Auditor checks the cost accounting records. Financial Audit Management Audit develops the relationships with the outside world. Management Auditor must be a person having good knowledge of management control.

Cost Auditor should be a person with requisite qualifications.

It is compulsory & Statutory.

Management Auditor must be a person having good knowledge of management control.

It is not Statutory.

5
6

It is a program of one year.

Only Cost accountant can conduct.

It covers wide area of all management activities.

Can be conducted by any person.

Time Limit is fixed.

No time limit can be fixed for submission.

Difference Between Financial & Management Audit

Points of Difference Financial Audit Management Audit

Concept
Objective

It is examination of financial Audits.

To ascertain if all transactions have been properly accounted.

It is comprehensive examination of efficiency of management.

To make an evaluation of the efficiency of management.

Continuity Scope

Required to be done every year. Narrow

Not required to be done every year. Broader

Efficiency of employees is assessed.

Efficiency Efficiency of employees is not of assessed. employees Auditor Cost involved Duration Only professional accountant are competent. Involves less cost Covers accounts of only 1 year.

Can be performed by group of experts. Quite costly Covers accounts for a number of years.

Difference between Financial & Cost Audit.

Basis of difference
Nature Scope of Audit Qualification

Financial Audit
Compulsary in nature. Covers all records Practiced by Chartered Accountant

Cost Audit
Optional in nature. Covers only cost Practiced by Cost Audit.

Method of Appointment
Reporting to whom Orientation

Financial Auditor is appointed by Cost Auditor is appointed by the company. the Board of Directors.
Financial Auditor submits his reports to members. It is organization oriented. Cost Auditor submits his reports to the Central government. It is product oriented.

Question Bank.
Short Notes
i. ii. iii. iv. v. vi. Management Audit (May 2008,2010,2011) Internal Audit (Oct 2004) Statutory Audit (May 2004) Management Audit (May 2003) Cost vs. Fianc (May 2001) Internal Audit & Internal Control (May 2001)

Question Bank.
Long Answers.
i. A sound Audit system strengthens management control critically examine this statement in respect of the financial audit, cost audit, management audit. (May 2009) (18 marks) ii. What is Cost Audit? Objectives? How it differs from financial audit? (Oct 2009)(14 marks) iii. Difference between Statutory & Cost Audit. Explain the role audit in control system. (may 2004) (15 marks)

Question Bank
iv. What are the objectives of management audit? Difference between management audit & statutory audit under Companies Act? (Oct 2004)(14 marks) v. Various types of audit? Explain the role played by each one them in improving the performance of the organization.(Apr 2003) (14marks) vi. What is the purpose of Cost Audit? Distinguish between Finance & cost Audit? (oct 2003)(14 marks)

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