What is internal auditng and external auditing

What is Internal Auditing and External Auditing?

I will explain first what internal Auditing is, internal auditing based on internal control. Then you confused, what is Internal Control,

Internal Control is introduced by management to fulfill these requirements.

• ·         Business Activities are going to be very smoothly and effectively.
• ·         Business Activities made according to management laid down procedures.
• ·         Secure Assets
• ·         Reveal and avoid frauds errors.
• ·         Accuracy and completeness of the financial statements.
• ·         Give the financial statements timely.

Normally internal control is a policy introduced by management to workers, employees to maintain business activities for growth of the entrepreneur.

As in internal auditing, auditors evaluate the internal control.  “How to evaluate Internal Control” is your next question I know.

Auditors perform to take evidence from internal control whether the internal control going very effectively. These test called test of controls. I will describe test of controls later. After Evaluate auditors give a report to management these areas are satisfied and these are moderate and significant.

Internal Audit report is very powerful tool to display the internal control of the company. Reporting side I will describe later.  

Then what is external auditing

External auditing based on an act approved by a parliament, act says that all PLC companies have to audit after the financial Year.

In external Auditing Auditors give an opinion on Financial Statements prepared by Management.

Financial Statements are Income Statement, Equity Change statement; Balance Sheet, Cash Flow and Other Explainers Notes.

I will give a chart to understand difference between external auditing and internal auditing.

 Description                              Internal Auditing                             External Auditing

Scope                                          Done By Management           According to act           

Objective                                    Evaluate internal control          gives an opinion on financial Statements

Obligation                                  to Management                        share holders and other parties

Appointed by                              management                            share holders

Time                                           no specific time                        normally financial Year

By Law                                       no specific law                        grant by law

What is Auditing and types of auditing

What’s auditing how it performs?

Auditing is separate subject of accounting scenarios.  there are two types of audits

-          Internal Audit

-          External Audit

I will explain those audit categories later. I will give definition for auditing.

“In An entity, management is preparing financial statements for a period. As in auditing, review those financial statements according to accounting standards and statutory regulations. After the review give an opinion for the review.

Objectives of auditing

There are two types of objectives.

-          Main purpose of auditing is “Give an opinion on Financial Statements”.

Other Purposes Are

-          Reveal fraud and error and correct them

-          Improve the efficiency of internal control of the company.

Benefits of Auditing

-          Improve the efficiency and productivity of the internal control.

-          Can obtain professional guidelines from auditors.

-          More reliability on tax activities.

-          More reliability on Bank loan Approvals.

-          More reliability on investment approvals.

-          Grow the good will

-          Weakness can identify through ML(Management Letters)

Audited financial statements are very acceptable; those statements are accepted by law institutions, Banks, Financial companies, tax departments.

Types of Auditing

  

                                                                                                                   

Nature                                                                                                         Time

Personal Audit                                                                                       Continues Auditing   

Statutory audit                                                                                       Interim Auditing

Internal Audit                                                                                         Final Audit   

Management Audit

                                                              

 Types of Auditing (Rest)

By Nature

Statutory audit

This audit is based on act approved from parliament or any other government institutes its called statutory audit.

Private Audit

This is not a compulsory audit, owner of the company do an audit due to personal satisfaction.

Ex - Sole Enterprise and Partnership Enterprise.

Internal Audit

Evaluate the internal control introduced by management, and report weakness and strengthens to management.

Management Audit

Evaluate management decisions and reporting audit.

By Approach

Vouching Audit

This audit called “every transaction audit”. Observe the every transaction with related documents.

Ex – check Voucher under that

-          Authorize by

-          Correct Classification

-          Post to accounting books

-          Post to correct general ledger.

System Audit

 Audit Based on procedures of a company. Auditors look the procedures and evaluate it, whether they are economically and effectively.   

BY Work Done

Comprehensive Audit

This audit not based for only financial factors but also management, law, usage of resources.

Complete Audit

 This audit performed all areas in entrepreneur. It says that all the areas cover, in normally this audit performed by most of the auditors. 

BY TIME

Continues Auditing

If an auditor perform audit all over the tear called continues auditing. If there are more transactions and more risky areas this type of audits performed.

Interim Auditing

Auditors come by 3 months, 6months, and perform the audit that’s called Interim audit. Most of the financial Companies do this.

Final Auditing

After the all ledger balances balanced and prepared the financial statements, this audit going to be commenced. This audit is special thing what it says that these audited financial statements include in annual reports.