A PROJECT ON

HOW INTERNAL AUDIT CAN CONTROL COST

IN THE SUBJECT

ADVANCED COST ACCOUNTNG

SUBMITTED BY

NAME: Kautilya Patel

ROLL NO.:

DIVISIONS: E

MBA

TO

YEAR: 2018-19
Sr.no Particulars Page no.
CHAPTER-1 INTRODUCTION

1.1 MEANING AND DEFINITION 6.6

1.2 HISTORY OF INTERNAL AUDIT 8
CHAPTER-2 INTERNAL AUDIT and COST CONTROL

2.1 MISSION OF INTERNAL AUDIT 8

2.2 PURPOSE OF INERNAL AUDIT 9
2.3 OBJECTIVE OF INTERNAL AUDIT 9
2.4 PRINCIPLES OF INTERNAL AUDIT 10
2.5 AREAS OF OPERATION 11
2.6 ESSENTIALS OF INTERNAL AUDIT 12
2.7 ROLES OF INTERNAL AUDIT 18
3.1 CATEGORIES 20
3.2 STANDARDS RELATED TO INTERNAL AUDIT 21
4.1 COST CONTROL 30
4.2 METHODS OF COST CONTROL 31

CHAPTER V – CONCLUSIONS & SUGGESTIONS

  Introduction

The general definition of an audit is an evaluation of a person, organization,

system, process, enterprise, project or product.

The term most commonly refers to audits in accounting, internal auditing and
government auditing, but similar concepts also exist in ,project management,
quality management, water management and energy conservation.

Auditing is defined as a systematic and independent examination of data,

statements,records, operations and performances (financial or otherwise) of an
enterprise for a statedpurpose. In any auditing the auditor perceives and recognizes
the propositions before himfor examination, collects evidence, evaluates the same
and on this basis formulates his

The types of audit are:-

1. EXTERNAL AUDIT:- independent of the organisation.

2. INTERNAL AUDIT:- an organization auditing its own systems, a self

assessment.

INTERNAL AUDIT is an independent, objective assurance and consulting activity

designed to add value and improve an organization's operations. It helps an
organization accomplish its objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness of risk management, control,
and governance processes.

Internal audit is a catalyst for improving an organization's governance, risk

management and management controls by providing insight and recommendations
based on analyses and assessments of data and business processes. With
commitment to integrity and accountability, internal audit provides value to
governing bodies and senior management as an objective source of independent
advice. Professionals called internal auditors are employed by organizations to
perform the internal auditing activity.

The scope of internal audit within an organization is broad and may involve topics
such as an organization's governance, risk management and management controls
over efficiency/effectiveness of operations (including safeguarding of assets), the
reliability of financial and management reporting and compliance with laws and
regulations.

Internal audit may also involve conducting proactive fraud audits to identify
potentially fraudulent acts; participating in fraud investigations under the direction
of fraud investigation professionals, and conducting post investigation fraud audits
to identify control breakdowns and establish financial loss. Internal audit is an
audit conducted by an internal auditor appointed by the management of the
enterprises with a view to highlighting the weak areas of the organizations. It
includes examination and evaluation of various organizational activities and to
produce the helping hand to the management complete their responsibilities
efficiently and effectively.

The institute of internal auditor has defined internal auditing as follows: “ Internal
auditing is the independent appraisal activity within an organization for the review
of the accounting, financial and other operation as a basis for protective and
constructive service to the management.control.

The internal auditor audits the accounts and other relevant records daily, regularly
or on periodical basis to accomplish

Requirements of internal audit :-

1. Internal audit may be conducted to ascertain whether all rules, regulations,

policies, procedures and principles have been followed by the company or not.

2. To check whether the existing internal control system is adequate and effective

and according to the size of the organization.

3. To ensure that all the assets of organization are properly safeguarded, if not, he

reports the management about the drawback with suggestions.

4. To highlight the weak areas of the organization and give suggestion to

strengthen

them.

5. To check whether working of the organization is smooth, effective, efficient and

economical

HISTORY OF INTERNAL AUDIT:-

The Internal Auditing profession evolved steadily with the progress of

management

science after World War II. It is conceptually similar in many ways to financial
auditing by public accounting firms, quality assurance and banking compliance
activities.

While some of the audit technique underlying internal auditing is derived from
management consulting and public accounting professions, the theory of internal
auditing was conceived primarily by Lawrence Sawyer (1911-2002), often
referred to as "the father of modern internal auditing"; and the current philosophy,
theory and practice of modern internal auditing as defined by the International
Professional Practices Framework (IPPF) of the Institute of Internal Auditors owes
much to Sawyer's vision.

With the implementation in the United States of the Sarbanes-Oxley Act of 2002,
the profession's exposure and value was enhanced, as many internal auditors
possessed the skills required to help companies meet the requirements of the law.
However, the focus by internal audit departments of publicly traded companies on
SOX related financial policy and procedures derailed progress made by the
profession in the late 20th century toward Larry Sawyer's vision for internal audit.
Beginning in about 2010, the IIA once again began advocating for the broader role
internal auditing should play in the corporate arena, in keeping with the IPPF's
philosophy.

MISSION

The mission of the Internal Audit is to help create the processes required for
organizational success. This is accomplished by independently and objectively
evaluating the operations and internal controls within the organization and
providing management with analyses, appraisals, and recommendations to
strengthen operations and controls

PURPOSE OF INTERNAL AUDIT:-

The internal audit is one of the management’s control tools who through its
operations assist the entire organization by examining and evaluating the adequacy
and efficiency of internal control, risk management, quality of operations and
governance processes. The internal audit furnishes the organization with analyses,
appraisals, recommendations ,counsel and information. The purpose is to ascertain
that the internal control system, by taking into account also the information
produced by the external auditors, functions so that the management can be
reasonably sure that the set objectives and goals will be achieved, the operations
are effective, reporting is reliable and safeguarding of assets and compliance with
the laws and regulations is done.

OBJECTIVES OF INTERNAL AUDIT:-

1. To determine the reliability and integrity of information; (i.e. evaluating the

internal control systems and the integrity of financial and operating information

produced by those systems).

2. To determine whether compliance exists with policies, procedures, laws and

regulations.
3. To establish that there is a proper authority for every acquisition, retirement and
disposal of assets.

4. To confirm that liabilities have been incurred only for legitimate activities of the
organization.

5. To appraise the economy and efficiency of resource utilization (i.e. physical,

monetary and most importantly staff).

6. To review operations or programs for consistency with established management

goals and objectives.

7. To assist members of the organization in the effective and successful

performance of their responsibilities by providing them with analyses, appraisals,
recommendations and other pertinent information concerning the activities being
reviewed.

8. To analyze and improve the system of internal check, in particular to see that it

is:-

a) working,

b) sound, and

c) economical.

9. To facilitate the prevention and detection of frauds.

10. To review the operation of the overall internal control system and to bring

material departures and non-compliances to the notice of the appropriate level of

management, to locate unnecessary and weak control system effective and

economical.
 PRINCIPLES OF ESTABLISHING INTERNAL AUDIT:-

1. Independence:-sufficiently high

status in the organization. He may be required to report directly to the board of

directors.

2. Objectives:- The objectives of the internal audit function should be made very

clear and unambiguous. The objective should be properly communicated so that

internal audit is not viewed as “ over the shoulder check” by other departments.

3. Clarity In Scope:- The scope of internal audit department must be specified

in a comprehensive manner. The department must at all times, have authority

to investigate from the financial angle, every phase of organizational activity

under any circumstance.

4. Definition Of Duties:- The internal audit department’s duty is to review

operations as part of the internal control system. It should not be involved in

performance of executive actions.

5. Internal Audit Department:- The size and qualification of staff of the internal

audit department should be commensurate with the size of the business. The

cost of internal audit department should not exceed the benefits expected to be

derived from it.

6. Reporting:- The programme of internal audit should be time-bound. There

should be provisions for periodic reporting on various operational and other

aspects.

7. Follow-up and review:- There should be sufficient scope for the follow-up

action on the various points raised in internal audit report. Top management

should take active part in ensuring compliance with action points raised in the
report.

Internal audit work should be properly recorded because:-

a) The head of internal audit needs to be able to ensure that work delegated

to staff has been properly performed.

b) Working papers provide, for future reference, evidence of work performed,

details of problems encountered and conclusions drawn; and

c) The preparation of working papers encourages each internal auditor to

adopt a methodical approach to his work.

D). Evaluation of the Internal Control System:- The internal auditor should
identifyand evaluate the organization's internal control system as a basis for
reporting uponits adequacy and effectiveness.

E). Evidence:- The internal auditor should obtain sufficient, relevant and reliable
evidence on which to base reasonable conclusions and recommendations. Internal
audit evidence is information obtained by an internal auditor which enables
conclusions to be formed on which recommendations can be based. The internal
auditor should determine what evidence will be necessary by exercising judgement
in the light of the objectives of the internal audit assignment.

F). Reporting and Follow-Up:- The internal auditor should ensure that findings,
conclusions and recommendations arising from each internal audit assignment are
communicated promptly to the appropriate level of management and he should
actively seek a response
initiatives. This places the CAE in the position to report on many of the major

risks the organization faces to the Audit Committee, or ensure management's

reporting is effective for that purpose. Internal auditors may help companies

establish and maintain Enterprise Risk Management processes.

3. Role in Corporate Governance:- Internal auditing activity as it relates to

corporate governance is generally informal, accomplished primarily through

participation in meetings and discussions with members of the Board of Directors.

Corporate governance is a combination of processes and organizational structures

implemented by the Board of Directors to inform, direct, manage and monitor the

organization's resources, strategies and policies towards the achievement of the

organizations objectives. The internal auditor is often considered one of the "four

pillars" of corporate governance, the other pillars being the Board of Directors,

management, and the external auditor. A primary focus area of internal auditing

as it relates to corporate governance is helping the Audit Committee of the Board

of Directors (or equivalent) perform its responsibilities effectively. This may

include reporting critical internal control problems, informing the Committee

privately on the capabilities of key managers, suggesting questions or topics for

the Audit Committee's meeting agendas, and coordinating carefully with the

external auditor and management to ensure the Committee receives effective

information.
AUDIT REPORT Of xyz componey

CONTENTS

Areas Covered 3

Rating Criteria
5

Detailed Observations

7
Disclaimer

17
Scope of Review

Order to Cash

HR-Payroll
Rating criteria
The observation rating criteria and risk rating criteria are as per
the pre-defined parameters specified by the company’s
management, as follows:
Define Standard Operating Procedure
QUESTIONER