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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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