Required: Answer questions a-c. 15.6 Your firm has been external auditor of Elgo

Question

Required: Answer questions a-c.

15.6 Your firm has been external auditor of Elgol ple for some years. Elgol has an internal audit department, engaged in both compliance and operational auditing. You have a good opinion of the quality of internal audit work and have established a good relationship with John MacLean, the head of internal audit. He has asked you to give a talk to the members of his department during their annual training week. He would like your views on the different roles of external and internal auditors, the type of work that each carry out and their reporting responsibilities. Required (a) Draft the lecture notes that you will use when giving your talk, paying particular attention to the differences and similarities of the following features of external and internal auditors: (i) general role; (ii) independence; (i) the work carried out on systems of internal control and operations; (iv) reporting responsibilities

Explanation / Answer

Answer(a)

Answer(b)

The periodic, systematic and independent examination of the financial statements of the company conducted by a third party for specific purposes, as required by statute is known as External Audit. The main aim of external audit to publicly express an opinion on:

For carrying out an external audit, the auditor is appointed by the members of the company. He should be independent, i.e. he should not be connected to the organization in any way so that he can work in an impartial way without any influence. The auditor has the right to access books of accounts to obtain necessary information and provide his opinion to the members by way of the audit report.

Answer(.c)
Internal Control Reviews

One of Internal Audits primary activities is performing reviews of internal controls. These are our traditional audits of “hard controls,” such as evaluating the adequacy of segregation of duties, transfers of accountability, supervisory reviews and approvals, reconciliations, physical safeguards over cash, checks and critical forms, and existence of written procedures.

Internal control reviews can generally be classified into one of the following four categories:

Operational Reviews

An operational review examines the use of resources available to the organization and evaluates whether those resources are being used in the most efficient and effective ways to meet the stated missions and objectives. The accomplishment of goals and objectives is a major consideration of our operational reviews.

Financial Reviews

A financial review evaluates the accuracy and correctness of accounting transactions and reports. The purpose of this type of review is to verify that the financial activity of a unit is accurately reflected in financial reports and that accounting records and financial documentation support the financial reports.

Compliance Reviews

A compliance review determines the degree of adherence to laws, regulations, and internal and external policies and procedures. Examples of external requirements include federal and state laws and regulations, the State Administrative Manual (SAM), and DHCS' policies and procedures.

BASIS FOR COMPARISON INTERNAL AUDIT EXTERNAL AUDIT Meaning Internal Audit refers to an ongoing audit function performed within an organization by a separate internal auditing department. External Audit is an audit function performed by the independent body which is not a part of the organization. Objective To review the routine activities and provide suggestion for the improvement. To analyze and verify the financial statement of the company. Conducted by Employees Third Party Auditor is appointed by Management Members Users of Report Management Stakeholders Opinion Opinion is provided on the effectiveness of the operational activities of the organization. Opinion is provided on the truthfulness and fairness of the financial statement of the company. Scope Decided by the management of the entity. Decided by the statute. Obligation No, it is voluntary Yes, according to Indian Companies Act, 1956. Period Continuous Process Once in a year Checks Operational Efficiency Accuracy and Validity of Financial Statement

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