2. Topics covered under this chapter
• Meaning
• Importance
• Advantages
• Limitations
• Differences between Internal Audit and Statutory Audit
3. Meaning of Internal Audit
• “Internal Auditing consists of continuous, critical review of financial and
operating activities by a staff of auditors functioning as full time salaried
employees”.
• It is an independent appraisal function established within an organization to
examine and evaluate its activities as a service to the organization.
• It is a type of control which functions by measuring and evaluating the
effectiveness of other type of control.
• It deals primarily with accounting and financial matters, it may also properly
deal with matters of an operating nature.
4. Importance of Internal Audit
• It is important as it will help to maintain Reliability and Integrity of
Information
• It is critical as it will ensure smooth Compliance with policies, plans,
procedures, laws and regulations
• It is very useful in Safeguarding of company assets
• It is a method of Economical and efficient use of resources
• It will support the company in Accomplishment of established objectives
and goals for operations
5. Advantages of Internal Audit
• It will lead to discovery of errors or frauds which can be rectified before the
external final audit is conducted.
• It removes the need to employ external consultants to act as internal
auditors hence saving large sum of money.
• The internal auditors are intimately acquainted with the business and its
processes as they are continuously employed in the same company.
• It maintains a group of highly skilled people available to cope with non
recurring and exceptional jobs unlike other less skilled staff.
• It ensures that the company’s standard policy and procedures are running
smoothly.
• Internal auditors are very useful in areas like operational audits, internal
check controls and other forms of detailed auditing methods.
6. Limitations of Internal Audit
• Internal auditor’s report is not accepted by the shareholders or
tax authorities. They require the external auditor’s report.
• Since internal audit is done by the employees of the company
chances are that it may be biased and therefore company
cannot depend on such reports.
• As an internal audit is not done by the professional auditor,
chances of internal auditor not detecting the errors are high.
7. Differences - Internal Audit & Statutory Audit
InternalAudit
Appointment – Internal Auditor
is appointed by the
Management.
Qualifications – Need not
possess any specific expertise.
Status – Is an employee of the
company.
Conduct of Audit – Is a kind of
continuous audit.
Scope of Work – Determined by
the management.
StatutoryAudit
Appointment – Statutory
Auditor is appointed by the
Shareholders.
Qualifications – Must be
qualified as per Sec 226 of the
Companies Act 2013.
Status – Is an independent
person.
Conduct of Audit – After
preparation of final accounts.
Scope of Work – Determined
by Law.
8. Differences - Internal Audit & Statutory Audit
InternalAudit
Objective – To find out error or
frauds.
Determination of duty – Can be
reduced by management.
Report – No report required.
Prosecution – Cannot be
prosecuted for professional
misconduct under the CA Act
unless is a CA.
Remuneration – Fixed by the
Management.
Attendance at Meetings – No
right to attend meetings.
StatutoryAudit
Objective – To check the
conformity and fairness of
accounts.
Determination of duty – Not
possible, cannot be reduced.
Report – Mandatory report to be
submitted.
Prosecution – Can be prosecuted
under the CA Act.
Remuneration – Fixed by the
Shareholders.
Attendance at Meetings – Right to
attend meetings.
