audit as a control tool

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AUDIT AS A CONTROL TOOL

TYPES OF AUDIT

I. MANAGEMENT AUDIT

II. FINANCIAL AUDIT

III. INTERNAL AUDIT

IV. COST AUDITNAMES:

ANUSHREE

AMRUTA

ARPIT

MITEN

PRAJAKTA

POONAM

TANMAYA


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INDEX

Slide Content

1 Title along with names.

2 Introduction to Audit

3 Definition of Audit

4 Classification of Audit

5 Advantages of Audit.

6 Tools & Technique of Audit

7 Internal Audit-Meaning & Definition

8 Objective of Internal Audit

9 Internal Audit as a control Tool

10 Financial Audit-Meaning & Definition

11 Stages of Financial Audit

12 Objective of Financial Audit

13 Difference between Internal & Financial Audit

14 Meaning & Definition of Management Audit.


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Index Conti..Slide Content

15 Objective of Management Audit

16 Scope of Management Audit

17 Steps in Management Audit

18 Management Audit as Control Tool

19 Cost Audit- Meaning

20 Cost Audit Definition

21 Objective of Cost Audit

22 Types of Cost Audit

23 Cost Audit as a Control Tool

24 Areas of Cost Audit

25 Scope of Cost Audit

26 Difference between Cost Audit & Management Audit

27 Difference between Financial Audit & Management Audit

28 Difference between Financial Audit & Cost Audit

29 Question Bank


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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 ConductedWith A View To Expressing An Opinion Thereon


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CLASSIFICATION OF AUDIT

TWO CATEGORIES OF CLASSIFICATION

(A) ACCORDING TO ORGANIZATIONAL STRUCTURES

I. STATUTORY AUDIT

II. PRIVATE AUDIT

III. GOVERNMENT AUDIT

IV. INTERNAL AUDIT

(B) FROM PRATICAL POINT OF VEIW

I. CONTINUOUS AUDIT

II. ANNUAL/PERODICAL/FINAL/COMPLETED AUDITIII. BALANCE-SHEET AUDIT

IV. CASH AUDIT

V. INTERIM AUDIT

VI. MANAGEMENT AUDIT

VII. PERFORMANCE AUDIT


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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


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TOOLS AND TECHIQUES OF AUDIT

SURVEY

QUESTIONNAIRE

FOCUS GROUPS

INTERVEIW

DIRECT OBSERVATION


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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 TheirStated 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.


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INTERNAL AUDIT

OBJECTIVES OF INTERNAL AUDIT

Adequacy And Reliability Of Management Information And

Control System

Adequacy, Accuracy And Effectiveness Of Internal ControlSystem In Relation To Operational Activities

Safeguarding Assets Utilization And Accounting

Apprising The System And Procedure

Achievement Of Management Objectives ThroughPerformance Appraisal

Compliance With Statutory Laws And Rules


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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


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Financial audit & Statutory Audit

Financial Audit: It is an audit of financialstatement of a company or any other legal entityresulting in the publication of independent opinion

on whether or not those financial statements arerelevant, accurate, complete & fairly presented.

Statutory Audit :This is a type of financial audit

which creates an obligation for every privatelimited or public limited company to have itsaccounts audited every year by CharteredAccountants.


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Stages of Financial Audit

1. Planning and Risk Assessment.

2. Internal Control Testing

3. Substantive Procedure4. Finalization


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Objective of financial Audit

1. Prevention of Fraud, waste & detection of errors.

2. Assessing compliance with accounting procedure laiddown.

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.


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Difference between Internal Audit and

Financial Audit.Internal Audit Financial Audit

Appointment Management makes the

appointment.

Appointed by different

authorities.

Qualification No Fixed Qualification. Practicing Chartered Accountant

required.

Objects Detection and Prevention of

Frauds.

Showing true & fair view of

affairs of the organization.

Scope Fixed by mutual consent of

auditor & management.

Fixed by Companies Act 1956.

Remuneration Management fixes the

remuneration.

Remuneration is Fixed by the

appointing authorities.

Report Submits report to the

management.

Submits reports to the Share

Holders.

Removal Management can remove

Internal Auditor

Requires Specific procedure for

removal.


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Management Audit

Meaning: Management Audit attempts to evaluate theperformance of various management process &functions. It is an Audit to examine, review & appraisethe carious policies & actions of management on the

basis of certain standards. Definition: According to William P Leonard The

Management Audit may be defined as acomprehensive & constructive examination of an

organization structure of a company & its plans &objectives, its means of operation & its use of humans& physical facilities.


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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 businessobjectives or not.


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Scope of Management Audit

Scope

1.Accounts & Finance2.Management Information

3.General Administration

4.Inventory Control5.Personal Management


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Steps in Management Audit

Identify the objectives

Breakdown the objectives

Assess the Adaptability

Evaluation of Performance

Suggestions & Reviews


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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.


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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.


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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. Financialaudit is a Fait accompli. Cost Audit is mainly a

preventive measure, a guide for management

policy& decision in addition to being abarometer of performance.


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Objective of Cost Audit

1. Protection

2. Constructive Appraisal

3. Improved Productivity4. Pre-Audit


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Types of Cost Audit

1. Propriety Audit

2. Efficiency Audit


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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) For Consumer

i. Helps Government to fix fair selling price of consumer goods.

ii. Does not allow producers to make excess profits.

c) For Shareholdersi. Proper valuation of closing stock & WIP & reveals true picture of

profitability.


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Areas of Cost Audit Programme

I. Material

II. Stores & Spare parts

III. Work in ProgressIV. Depreciation

V. Labour

VI. OverheadsVII.Capital utilization


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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 2093. Statutory Cost Audit can be conducted only by a

qualified cost accountant.


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Difference between Cost Audit &

Management AuditSrNo

CostAudit Financial Audit

1 Cost Audit is verification of cost

records.

Management Audit develops the

relationships with the outside world.

2 Cost Auditor checks the cost

accounting records.

Management Auditor must be a person

having good knowledge of managementcontrol.

3 Cost Auditor should be a person

with requisite qualifications.

Management Auditor must be a person

having good knowledge of management

control.

4 It is compulsory & Statutory. It is not Statutory.

5 It is a program of one year. It covers wide area of all management

activities.

6 Only Cost accountant can conduct. Can be conducted by any person.

7 Time Limit is fixed. No time limit can be fixed for submission.


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Difference Between Financial & Management Audit

Points of

Difference

Financial Audit Management Audit

Concept It is examination of financial

Audits.

It is comprehensive examination of

efficiency of management.

Objective To ascertain if all transactions

have been properly accounted.

To make an evaluation of the

efficiency of management.

Continuity Required to be done every year. Not required to be done every year.

Scope Narrow Broader

Efficiency

of

employees

Efficiency of employees is not

assessed.

Efficiency of employees is assessed.

Auditor Only professional accountantare competent.

Can be performed by group ofexperts.

Cost

involved

Involves less cost Quite costly

Duration Covers accounts of only 1 year. Covers accounts for a number of

years.


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Difference between Financial & Cost Audit.

Basis ofdifference

Financial Audit Cost Audit

Nature Compulsary in nature. Optional in nature.

Scope of Audit Covers all records Covers only cost

Qualification Practiced by CharteredAccountant

Practiced by Cost Audit.

Method of

Appointment

Financial Auditor is appointed by

the company.

Cost Auditor is appointed by

the Board of Directors.

Reporting to

whom

Financial Auditor submits his

reports to members.

Cost Auditor submits his

reports to the Central

government.

Orientation It is organization oriented. It is product oriented.


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Question Bank.

Short Notes

i. Management Audit (May 2008,2010,2011)

ii. Internal Audit (Oct 2004)

iii. Statutory Audit (May 2004)

iv. Management Audit (May 2003)

v. Cost vs. Fianc (May 2001)

vi. Internal Audit & Internal Control (May 2001)


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Question Bank.

Long Answers.

i. A sound Audit system strengthens managementcontrol 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 differsfrom financial audit? (Oct 2009)(14 marks)

iii. Difference between Statutory & Cost Audit.Explain the role audit in control system. (may2004) (15 marks)


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Question Bank

iv. What are the objectives of management audit?Difference between management audit &statutory audit under Companies Act? (Oct2004)(14 marks)

v. Various types of audit? Explain the role playedby each one them in improving theperformance of the organization.(Apr 2003)(14marks)

vi. What is the purpose of Cost Audit? Distinguishbetween Finance & cost Audit? (oct 2003)(14marks)


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THANK YOU

audit as a control tool

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