Why Audit?

ByMahfooz Ali Khan

Date 28th February,2014

Participants of 17th MCMC, KARACHI

What are Accounts?

• Facts about Monetary matters

• Data pertaining to financial transactions for a particular

period

• Financial record compiled for decision makers

• A process of recording, classifying and summarizing in a

significant manner and in terms of money, transactions and

events, which are, in part at least, of financial character and

interpreting results thereof covering a specific period

Historical Background of Audit

The origin of Audit activityStart of Business EnterprisesGovernment AuditAudit in modern democracies

What is Audit?

• Definition

“ An independent examination for expression of Opinion on the Financial Statements of an entity by an appointed Auditor in pursuance of that appointment and in compliance with relevant statutory obligation.”

“ In general, the Mechanism within the process of Accountability whereby the performance of those in control of the resources of an organization is checked or monitored by or on behalf of interested parties.”

Why do we require Audit?

• Tool of Accountability

• Monitoring tool in the hands of decision makers

• Statutory & Legislative requirement

– Articles 168 and 171 of the constitution of Islamic Republic of

Pakistan provides and Authorizes the Auditor General of

Pakistan to Audit the Accounts of the Federation and the

Provinces

– Article 171 of the Constitution provides for constitution of Public

Accounts Committee

Kinds of Audit

Audit against provision of funds

Audit against sanctions

Audit against Rules and Regulations (Regularity Audit)

System Based Audit

Value for Money Audit or Performance Audit or 3E Audit

o Economy

o Efficiency and

o Effectiveness

Performance Audit

• Value for Money Audit

• Performance Audit

• 3 E Audit

– Economy

– Efficiency

– Effectiveness

Internal Controls

The plan of an Organization and all coordinate methods

and measures adopted within the organization, to

safeguard its assets, check the accuracy of its accounting

data, promote operational efficiency and encourage

adherence to prescribed managerial policies’.

Elements of Internal Controls

Organizational Structure

Procedures

Physical facilities

Accounting and other Records

Reports

Standard of Performance

Internal Auditing

Organizational Structure Defining Objectives

Grouping related activities

Defining and assigning commensurate authority

Maintaining proper span of control

Providing minimum number of managerial levels

Separating line and staff functions

Delegating authority

Recognizing individual status of employees

Specifying jobs