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Internal & external audit (Meaning & need for internal control…
Internal & external audit
Meaning & need for internal control
Environments keep changing
Internal include
Organisation structure
policies & procedures
Technology
External include
regulatory & legal environment
Practices
Risk assessment
Information & reporting systems
Control & monitor performances
The Turnball report (2005)
UK combined code
management of the control system
Safeguard shareholders investment & assets
Review of effectiveness of the systems annually
Financial
Operational
compliance controls
Risk management
Effective & efficient
Quality reporting
Ensure compliance
Achieve objectives through internal controls committee
ISA 315 all above
Elements of internal control
Control environment
Governance structure
Management functions
Attitudes, awareness & actions
The Turnbull report (2005) ISA 315
Communication & enforcement of integrity & ethical values
Commitment to competence
Participation by those charge with governance
Management's philosophy & operating style
Organisational structure
Assignment of authority & responsibility
Human resources policies & practices
System include
Identification & allocation of responsibilities for control activites
Information & communications processes
Processes for monitoring the continuing effectiveness of the system of internal controls
4.Continuous review of the effectiveness
External audit
Mean, purpose & scope
The British accounting association (BAA)
American accounting association (AAA)
Economic actions & events
Communicating the results to interested users
Companies act 2006 & International auditing standards
Several responsibilities of companies act 2006
True & fair view state of affairs BS
True & fair view profit or loss from IS
True & fair view consolidation as a whole of profit or loss
Properly prepared reporting framework
Consolidated accounts to companies act & IRS reg's
Free from misstatement caused by fraud or error
What true and fair view?
Under the companies act requires true & fair view
UK the financial reporting council (FRC) have legal opinions
True & fair concept
Standard is applied
Exceptional or extremely rare cases
Choices regarding standard
Circumstances not coved by standards
Scope of external audit
different types of entity
Limited companies = companies Act 2006
Building societies = Act 1986
Trade unions & employers associations = TU & LR Act 1992
Housing association = legal constitution HA
Charities = legal form of the charity
Investment business = Financial services & markets Act 2000
Solicitors & pension funds own legislation
Public sector own framework
Small companies are exempt
Turnover not more than £6.5m
Balance sheet not total more than £3.26m
Employees not more than 50
Audit & corporate governance
UK companies act requires
Directors must account assets under control shareholders
True & fair view of position & audit by independent
combined code & legal corporate governance
Ltd companies by law prepare annual accounts
Accounting records
Show reasonable accuracy of financial position
True & fair view of balance sheets & income statements of profit or loss.
Purpose & scope of internal audit
The Turnbull report (2005)
Factors
Scale, diversity & complexity of actives
Number of employees
Cost-benefit of internal audit
Changes in the companies internal & external operation
What does internal auditor do?
Audit committees
Monitor the integrity of FS
Review companies control systems
Monitor & review the effectiveness
Make recommendations in GM
Monitor & review external auditors objectivity & effectiveness
Develop & implement policy engagement external auditor
Keep up-to-date accounting & audit developments
Types of internal audit
Helps to prevent & detect areas of weaknesses
Operational audit
Management, efficiency or value of money
Systems audit
compliance test, substantive tests
Evaluating specific internal
Organisation status
Scope or function
Technical competence
Due professional care
Internal work consider
Technical training
Supervised, reviewed, & doc
Conclusions reached
Circumstances
Reports prepared
Properly resolved
Amendments
Test the work