Chapter 22

1. The meaning of internal auditing and external auditing

Internal auditing- Independent activity, established by management to examine and evaluate the organisation's risk management process and systems of control and to make recommendations for the achievement of company objectives

External auditing- independent examination of evidence from which the financial statements are derived, to give the reader the truth and fairness of state of affairs which they disclose.

2. The purpose of internal and external audit

- A legal requirement to produce true and fair annual financial statements

2.1 Internal audit
-Part of organisational control of business.
-Ensure efficient and orderly running of the business

Role of internal auditor:
-Set corporate objectives
-Design and monitor performance measures for these objectives

Corporate governance:
-A properly functioning internal audit department is part of good corporate governance
-Enable management perform proper risk assessments

Function of internal audit in the context of corporate risk management:
-Manage basic data to identify risjs
-Identify techniques for priortising and managing risks
-Report on effectiveness of rish management solutions

Structure and operation of internal audit function
-Annually review the need for one
-Annually review its scrope of work
-Staffed with qualified experienced staff

Scope of internal audit:
-Review internal controls and financial reports
-Review management systems
-Carry out special management
-Conducting operational reviews

Limitations of internal audit:
-Only succeed if it is properly staffed and resourced
-If internal audit identify fraud, they may unwilling to disclose it for fear of the repercussions

Limitations can be reduced if an audit committee:
-Sets work agenda
-Receives interal audit reports
-Able to ensure the internal audit is properly resourced
-Has a"Voice" at main board level