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Assignment #03

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30 views4 pages

Assignment #03

Uploaded by

safa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Audit & Assurance Assignment #03

Submitted By:
Safa Riasat
Sap# 36622
BS-Accounting& Finance
(6th Semester)
Submitted To:
Sir Asif Taj
Date:
19th June, 2023

Faculty of Management Sciences,


Riphah International University, Al-Mizan Campus, Rawalpindi
2023
Question#01

Briefly discuss the advantages and dis-advantages of out-sourcing the


Internal Audit function?
Internal auditing is a review or monitoring activity set up within a company to help the company
itself. Its main roles include checking, evaluating, and reporting to the management and directors
on how well the accounting and internal control systems are working.
An internal audit department is created by the management or appointed by the board of
directors, and it reports to them. The department is led by the chief internal auditor, who is
supported by the internal audit staff. Their main tasks are:
 Making sure the business runs efficiently and smoothly.
 Ensuring that everyone follows the management's policies.
 Protecting the company's fixed assets and managing the current assets.
 Checking the accuracy and reliability of the company's records and accounts.
 Making sure the company follows all legal requirements.
Reasons for internal audit function
Due to increase in business size, which has reduced the efficiency of the management to have
full control of the business, it has become increasingly important for large businesses to have an
internal audit function. There is need for improved controls in large companies with
branches/subsidiaries as it is hard for the management to supervise such companies. Dynamism
in business due to economic, social and technical environment all call for change in the
management attitudes and constant appraisal for a change.

Responsibilities
 Regularly check the accounts to ensure they are accurate and reliable.
 Independently review business activities to ensure they are reliable, accurate, and
complete.
 Review company policies, operations, and procedures to make sure they meet
expectations and standards.
 Set up and plan an adequate accounting system and effective controls.
 Report to management regularly about the internal control systems, such as the
adequacy of staff and the development of computerized systems.
 Act as a consulting department for other departments like sales, accounting, and
purchases.
 Provide advice to management about economic changes and their impact on the
industry where the business operates.
 Prepare and present the company’s budget and monitor the company’s progress.
 Offer other services to management.
 Facilitate communication between staff and management.
 Develop staff welfare strategies, such as promotion plans for employees.
Outsourcing the internal audit functions
This is the process whereby the management purchases the services of auditing from outside.
This is because monitoring and reviewing required by certain companies could be done in a
small amount of time and full time employees cannot be justified or it may be expensive to
maintain an internal audit function consisting of employees.

Advantages
Service providers have good quality staff i.e. have specialized skill and assess what management
wants them to do. Also they have a high degree of professionalism since the service providers
are trained in many areas enhancing the quality of advice to the management on best practices.

Outsourcing can provide an immediate audit department instead of employing audit staff thereby
cutting costs e.g. salaries to the employees, benefits and allowances.

Outsourcing enhances independence and there is minimal room for collision thereby giving value
added reports i.e. there is real value for money.

Outsourcing enhances the auditor in understanding the business environment policies and
procedures thereby increasing the credibility of the financial reports and reducing their liability.

Disadvantages
The cost of outsourcing the internal audit functions might be high to make the directors not to
have the internal audit functions at all.

The company might use the same firm for internal and external audit services leading to inferior
reports.

Outsourcing leads to duplication of efforts if the same procedures are used in gathering evidence
in the final audit.

Outsourcing is not ideal for small businesses with few transactions.

External audits may bring leads to interior reports. I.e. Influence or cause unwanted changes in
the way the organization operates.

Factors that influence the external auditor in deciding on the extent to which he may rely
on the work of the internal auditor
The materiality of the areas or the items to be tested or the information to be obtained in the audit
exercise.

The level of audit risk inherent in the areas or items to be tested or in the information to be
obtained.
Specialized skills possessed by the internal audit staff i.e. the level of experience and
qualification.

Independence of the internal auditor i.e. whom they report to.

The level of judgment required i.e. how the internal auditor has gathered and arranged the report
and quality of working papers.

How the internal auditors have acquired evidence e.g. seeking legal advice from advocates,
seeking information from valuers, etc.

The efficiency and strength of internal control system.

Ways in which the internal audit department can assist the external auditor during his
audit work
The external auditor can use the internal auditor’s working papers to gather evidence concerning
the company’s operations, programs etc. Also the internal auditor can explain technical
operations or controls used by the company.

He can undertake verification of assets in particular mobile assets, assets held by third parties
and branches or subsidiaries which the external auditor may not have a chance to physically
verify during his presence.

Internal auditors can prepare schedules relating to items in their accounts e.g. asset schedules,
debtors schedule, creditors schedules etc which are important for comparison to be made by the
external auditor.

Internal auditor will pin point the weak areas in control systems which the external auditor will
concentrate on

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