A PRESENTATION ON THE TOPIC

“AUDITING”

MEANING:

Audit is the examination and verification of records and other evidences by an individual or a body of persons so as to confirm whether the records and other evidences present a true and fair picture of whether they are supposed to reflect.

There are two types of Audit: Financial audit. Non- Financial audit.

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BENEFITS OF AUDIT:

Audit yields multiple benefits. Some of these benefits are the following:

Identify opportunities for improvement. Reality check. Identify outdated strategies. Increase management’s ability to address

concerns. Enhances teamwork. Increase commitment to changes.

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FINANCIAL AND NON-FINANCIAL AUDIT

Relies primarily on standards set externally.

Procedures are formulized and consistent from company to company. Compliance with procedures adds credibility to the audit.

Relies primarily on standards set internally on the basis of customers and competitor information.

Procedures are fluid and should be adapted by each company. Measures should be created that suit the company’s needs.

Financial audit Non- Financial audit

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CONTD..

Standards are essentially the same from audit to audit.

Focus is on complying with standards set by external groups.

Audience is often primarily external, with audit used as a way of building credibility.

Standards should change as performance improves.

Focus is on exceeding standards set internally or by industry competitors.

Audience is generally internal, with data being used primarily to improve performance.

Financial Non- Financial

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CONTD..

Generally conducted yearly.

Focuses on measures that effect only financial performance.

Conducted on average, every 18 to 24 months.

Focuses on a broad range of functions that contribute to the success of functions that contribute to the success or failure of a particular process.

Non- FinancialFinancial

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LIMITATIONS OF AUDIT

It can neither help in prioritizing changes nor in allocating resources.

Audit cannot mobilize people to take action. Audit cannot generate better data than the

measures used to gather those. An audit, by itself cannot improve

performance. An audit should not be used for wrongful

purposes. It should not be used for personal indictment and to justify improve actions.

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AUDIT PROCESS:

An audit process consists of following stages:

Staffing the audit team. Creating an audit project plan. Laying the groundwork for the audit. Analyzing audit results. Sharing audit results. Writing audit reports. Dealing with resistance to audit recommenda

tions. Building an ongoing audit program. 8

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STAFFING THE AUDIT TEAM:

An audit team should consist of people who have substantial knowledge of systems and processes within the company. An audit team should consist of people who have knowledge in diverse areas.

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Some other aspects that should be considered are:

Team should consist of newcomers as well as experienced people.

Importance is given to people who is more experienced in auditing.

Functional expert should be included in the audit team.

The person who are closely associated should with the process should be included in the audit team.

Team members should possess strong analytical and interpersonal skills.

Understanding of company’s overall strategy and its goals and objectives. 10

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CREATING AN AUDIT PROJECT PLAN

An audit plan helps in better allocation of resources, especially if the resources are scarce. It makes sure that audit tasks are completed on time. It also ensures accountability and responsibility of the management by clearly stating what is to be done, who is responsible for which task and when the audit should be completed.

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LAYING THE GROUND WORK FOR THE AUDIT

The following steps will help an audit run smoothly:

Gathering executive support. Make arrangements with the area being

audited. Develop a checklist.

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ANALYZING AUDIT RESULTS

When the audit is completed, the gaps between a company’s targets and its actual performance can be identified. These gaps usually perform to specific areas in the various functions of the management. The audit results identify the opportunities for improvement, but arranging the areas in terms of importance is a difficult task.

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SHARING AUDIT RESULTS

The audit results are pressurized before the members of the executive team, the managers who work in the area covered by the audit, the audit team members and anyone else who is affected by the audit or is interested in the results, in a feedback meeting. The audit team’s objective during the meeting is to present a clear and simple picture of the current situation, as revealed by the audit.

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WRITING AUDIT REPORTS

After the audit work is completed, the whole process of auditing, the resultant findings and recommendations are written in a formal report canned an Audit Reports.

An audit report may be a plain summary of the audit. But such a report is not recommended because the probability of taking action in this case is less.

An audit report serves as a baseline document for measuring improvement in performing possible in future audits.

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DEALING WITH RESISTANCE TO AUDIT RECOMMENDATIONS

The audit team gives its recommendations when the audit is completed. These recommendations may not be always accepted, especially when they require people to change their way of working.

Types of resistance: Direct resistance to audit recommendations. Indirect resistance to audit

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BUILDING AN ONGOING AUDIT PROGRAM

It helps in monitoring improvement performance over a specified period of time. They help in systematically monitoring the changes taking place in the company’s work environment and also help managers deal with resistance to change.

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AUDIT TOOLS AND TECHNIQUES:

Budget. Timing. Projectability. Geography. Surveys. Questionnaires. Focus groups. Interviews. Direct observations.

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MANAGEMENT AUDIT:

A management audit is defined as “an examination of the conditions and a diagnosis of deficiencies with recommendations for correcting them.”

As per John C. Burton, “in a management audit, the auditor will see the management is getting information relevant to the decisions and actions which it must take. This will require a much more intensive analysis of information needs and the efficiency of the existing system in meeting them. The auditor will not have to decide whether management is making the right strategic and operative decisions but rather whether the management has available to it and is using the relevant information and techniques necessary to evaluate the various alternatives that exist.”

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OBJECTIVES OF MANAGEMENT AUDIT:

To critically analyze and evaluate management performance.

To detect and overcome existing management deficiencies and resulting operational problems.

To evaluate the methods and processes used by the management to accomplish its organizational objectives.

It helps to determine the effectiveness of the management in PODC the organization’s activities.

It helps to ascertain the appropriateness of the management’s decisions for achieving the organization objectiveness.

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TYPES OF MANAGEMENT AUDIT:

Complete management audit. Compliance management audit. Program management audit. Functional management audit. Efficiency management audit. Propriety audit.

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COMPLETE MANAGEMENT AUDIT

Complete management audit evaluates the firm’s current activities and measures the gaps between its existing policies and the objectives, and its actual activities.

Complete management audit is however, not designed to punish the inefficient or reprimand people who make honest mistakes.

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COMPLIANCE MANAGEMENT AUDIT

Auditors are asked to identify the gaps between the company’s existing policies and objectives, and its actual practice. However, in this case, the auditors do not make any recommendations for improvements.

They simply present their observations to the top management. The top management consults to personnel to decide whether, what, or how corrective action should be taken

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PROGRAM MANAGEMENT AUDIT

Program management audit is similar to complete management audit and compliance management audit; the only difference is being the fact that it focuses on a specific program. Program management audit is designed to appraise performance within a specified program and it doesn’t disturb other operations of the firm.

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FUNCTIONAL MANAGEMENT AUDIT

Functional management measures the difference between the actual performance of an organization and its objectives, with emphasis on a particular function.

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EFFICIENCY AUDIT

Efficiency audit is conducted to ensure that money is so utilized as to generate handsome returns.

The objectives of efficiency audit are: To invest the capital in areas that generate

optimum returns. To plan and invest judiciously in various

functions.

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PROPRIETY AUDIT

Propriety audit is conducted to examine the effect of the management’s decisions and actions on the society and the public. While conducting the audit, the auditor examines all transactions of the company to find out whether any of the transactions has negatively affected public interests.

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ORGANIZING THE MANAGEMENT AUDIT

Devising the statement of policy. Allocation of personnel. Staff training program. Time and other aspects. Frequency.

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INTERNAL AUDIT

o Traditional perspective.o Modern perspective.

Roles: Check whether the existing controls are

effective and adequate. Check whether the financial reports and

other records show the actual results of the company.

Check whether the sub-units of the organization laid down by the management 29

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SOCIAL AUDIT:

Blake, Fredrick and Myers define social audit as, “an systematic attempt to identify, analyze, measure, evaluate and monitor the effect of an organization’s operations on society.”

Social audit has been often used wrongly to mean activities pertaining to a company’s social programs, social surveys, etc.

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FEATURES OF SOCIAL AUDITS:

Social audits adhere to the specified norms. These norms may adhere to the government’s standards of social performance, standards established by the organization and norms set by outside agencies.

The aim of conducting a social audit is to influence the policies, objectives and actions of the concerned organization to improve its social performance.

Social audit is conducted by professionals who have knowledge about the social area being audited.

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TYPES OF SOCIAL AUDIT

Social balance sheet and income statement. Social performance audits. Macro- micro social indicator audits. Constituency group attitudes audits. Government mandated audits. Social process or program audits.

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AUDIT EVIDENCE

Persuasive. Relevant. Unbiased. Objective.

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APPROACHES TO SOCIAL AUDIT:

Inventory approach. Program management approach. Cost-benefit approach. Social indicator approach.

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