Audit Definition: An audit is independent examination of the financial information of any entity, whether profit oriented or not and

irrespective of the size or legal form when such and examination is conducted with a view to expressing an opinion thereon. Principles 1. 2. 3. 4. 5. 6. 7. 8. Integrity , objectivity and independence Confidentiality Skill and competence planning Documentation evidence System and internal control conclusions and reporting

Type of audits 1. Internal audit a. Management audit b. Operations audit 2. Financial audit 3. Cost audit

Internal Audit Internal auditing is a tool and technique for a periodical review of organisational systems and procedures arising out of activities within the organisation to ensure overall efficiency Internal audit is complementary to statutory auditing. Form of Internal audit report Terms of reference Purpose, scope and limitation of appraisal Contents of the report Follow-up of last audit report Significant facts Detailed reports Exhibits, statistics and graphic presentation Additional loose sheets

Management audit Management audit may be defined as a comprehensive and constructive examination of an organisation structure of a company, institution or branch of government or any other component thereof, such as division or department and its plans and objectives, its means of operations and its use of human and physical facilities.

Objectives o To reveal defects or irregularities in any of the elements to indicate improvements for best results o To assist the management to achieve the most efficient administration of the operations o To suggest to management the ways and means to achieve the objectives if the management of the organisation itself lacks knowledge of efficient management o To achieve the optimum efficiency of the management. o To aid the management at all levels in the effective and efficient discharge of their duties and responsibilities. Operational Audit An operational audit future oriented, independent and systematic evaluation performed by the internal auditor for the management of the organisational activities and controlled by top, middle and lower management for the purpose of improving organisation profitability and increasing the attainment of the other organisational objectives. Embraces.. Auditing of the operational activities for efficiency and economy Auditing of the org objectives for improved profitability Auditing management information and control system for effectiveness

Operational Audit Audit for management Audit of operations carried on as a result of management decision Auditing the performance for management Audit of performance of operations Auditing of operating levels of management Audit of operational arising out of management plans policies and objectives

Management Audit Audit by management Audit of plans, policies, objectives and organisational structure Auditing of the performances of management Auditing of the performances of management Auditing of the performances of management Audit of top management functions concerning formulation of plans policies and objectives

Cost Audit Definition The verification of the cost accounts and a check on adherence to cost accounting plan. an audit of efficiency, of minute details of expenditure while the work is in progress and not a post -mortem examination. The central government may if it considers necessary, direct that the audit of cost accounts kept by a company shall be conducted by a cost accountant within the meaning of the cost and works accountant act, 1959 in such a manner as may be prescribed. Such directions may in relation to a

company engaged in production, processing, manufacturing or mining activities require specified particulars relating to utilisation of material labour or other items of cost. Objectives .. Verification of cost accounts and to see that the cost accounting plan has been adhered to. Detection of errors and frauds Determination of inventory valuation Facilitating the fixation of prices of goods and services Periodical reconciliation between cost accounts and financial accounts Comparison of historical costs with those attainable under efficiency standards Isolation of abnormal costs with a view to highlight them. Examination of variances and their correct interpretation to the management. Examination of the operating efficiencies or inefficiencies of an enterprise and optimisation of the use of human, physical and financial resources. Analysis of the methods applied for allocation of overheads, examination of system of valuation of stick etc with a view to eliminating the malpractices causing harm to the community at large. Making an inter-form and intra-firm comparison of costs. Fixation of selling price of goods of international importance. Investigation of cost structure of industries approaching the government for tariff protection etc. Development of reasonable degree of cost consciousness and establishment of social justice to the community in a controlled and scarce economy. Note. The companies (amendment) act 1965 introduces several provisions regarding maintenance of cost accounting records and cost audit. Financial audit Definition: Financial audit is an historical oriented independent evaluation performed by external auditor for the purpose of attesting to the fairness, accuracy and reliability of the financial data, providing protection for the entitys assets and evaluating the adequacy and accomplishment of the system designed to provide for the afore mentioned fairness and protection. Financial data, while not being the only sources of evidence, are the primary evidence source. The evaluation is performed on a planned basis rather than a request. This is the oldest surviving form of audit. Due to separation of ownership and management of companies, the owners(share-holders) appoint the financial auditors every year to check the books of accounts kept by the management (board of directors)/ The companies act 1956 makes it an obligation for every private limited or public limited company to have its accounts audited every year by a chartered accountant. This is also called statutory audit Objectives of financial audit.. Prevention of fraud, waste and detection of error Verification of the documentation and workflow is in conformity with the internal control systems introduced and developed within the organisation Ascertaining the compliance with statutory laws and rules particularly in respect of financial and accounting matters.

Assessing whether there is compliance with accounting procedure laid down which includes all forms of control measures instituted by the management so far as they related to financial accounting and allied aspects of the business. Plugging the loopholes in the financial management policy laid down or arising from the process of working. This type of audit in most of appraisal is of historical in nature. Compliance with manufacturing and other companies (auditors report) order 1988
Financial audit is compulsory for all companies Covers all records kept by company including cost records Conducted by a practicing chartered accountant Financial auditor is appointed by the company in general meeting Cost audit is conducted only when so directed by central government. Covers only cost records Conducted by a practicing cost accountant Cost auditor is appointed by the board of directors with the previous approval of central govt. Cost auditor submits his report to the central govt with a copy of the report to the company. Cost accounting involves the preparation of a broad range of reports that management needs to run a business Cost accounting involves creating reports that can be in any format specified by management, with the intention of including only that information pertinent to a specific decision or situation. Cost accounting usually results in reports at a much higher level of detail within the company, such as for individual products, product lines, geographical areas, customers, or subsidiaries. while financial accounting incorporates this information into its financial reports (primarily into the balance sheet). There is no regulatory framework governing cost accounting reports. Cost accounting staff may issue reports at any time and with any degree of frequency, depending upon management's need for the information. Cost accounting does this too, but also can be involved in a variety of projections for future periods.

Basis Nature of companies Scope of audit Qualifications Method of appointment

Reporting to whom Audience

Financial auditor submits his report to the members of the company Financial accounting involves the preparation of a standard set of reports for an outside audience, which may include investors, creditors, credit rating agencies, and regulatory agencies. The reports prepared under financial accounting are highly specific in their format and content, as mandated by either generally accepted accounting principles or international financial reporting standards Financial accounting primarily focuses on reporting the results and financial position of an entire business entity.

Format.

Level of detail

Product costs

Cost accounting compiles the cost of raw materials, work-in-process, and finished goods inventory The structure of financial accounting reports are tightly governed by either generally accepted accounting principles or international financial reporting standards. Financial accounting personnel issue reports only at the end of a reporting period. Financial accounting is only concerned with reporting the results of reporting periods that have already been completed.

Regulatory framework.

Report timing.

Time horizon