Duties of an auditor

An auditor is generally as the watchdog of the business protecting the interests of its owners. He must be very careful while discharging his duties. He should be honest in his work and bold enough to alert the owners regarding any malpractices or frauds. In this context the auditor discharges certain duties and functions.

The important duties of an auditor are:

• Prepare audit reports
• Detection and prevention of errors and fraud
• Evaluation of internal control system
• Making suggestions for changing accounting system
• Comply with auditing standards
• Checking whether the books of accounts are maintained according to the requirement of law
• Adhere to the code of ethics and code of professional conduct
• Certifying whether the profit and loss account and balance sheet discloses a true and fair view of the state of affairs of the business.

Rights of an auditor

The company Act confers extensive power on the auditor. The following are the statutory rights of an auditor:

• Right to access to books of accounts
• Right to obtain information and explanations
• Right to make suggestions to the board
• Right to visit branches
• Right to receive notice of any general meeting
• Right to sign the audit report
• Right to remuneration
• Right to indemnified
• Right to take legal and technical advice

Audit Programme

Meaning

Audit programme is a detailed statement giving full instructions , hints, guidance and procedures to audit staff as to how they should proceed with audit work. It is prepared by the auditor. The audit programme is prepared taking into consideration the requirement of each client.

Audit programmes are generally prepared with the column provided for the type of work, the name of the clerk doing the work, the date of starting the work and the date of finishing the work. Each clerk should puts their signature in the columns provided for that undertaking the responsibility of the work performed.

Definition

According to prof.megis, an audit programme is “a detailed plan of the audit work to be performed, specifying the procedure to be followed in verification of each item in the financial statements and giving the estimated time required”.

Types of audit programme

Audit programmes are mainly 2 types:

• Fixed audit programme.
• Flexible audit programme.

Fixed audit programme

Fixed audit programme is a pre-planned or “tailor made” programme which is prepared in advance.

Flexible audit programme

Flexible audit programme is also known as progressive audit programme.It is more flexible which allows the auditor to make necessary adjustments in the programme according to the requirements and changed condition.

Advantages of internal control

The important advantages of internal control system are:

• Efficient conduct of business

Under internal control system, policies and procedures are set out by management. It facilitates smooth and orderly conduct of business.

• Detection of errors and frauds

Under Internal control systems duties of employees are distributed in such a manner that there is no scope for manipulation or fraud, unless there is collusion between employees.

• Reliability of accounts

Accounting system under internal control reduces chances of errors and omissions. Proper books of accounts are maintained and accounting principles are strictly followed. This ensures reliability of accounting information.

• Time saving

Auditor can test check or sample checks the transactions to ensure reliability, and accuracy of entries in the books. Hence he can complete his audit work and prepare financial statements within the prescribed time.

• Protection of assets

Internal control system safeguards assets against misuses, theft or other types of damages.

• Compliance with statutory requirements

Statutory requirements regarding maintenance  of books and documents, filing of returns and reports are complied with under a system of internal control.

• Interim reports

Internal control system helps management by providing the right information as and when required. It also helps the timely preparation of the financial statements.

• Reduces the work of the auditor

The works of the auditor is substantially reduced if the internal control system is efficient and dependable.

Objectives of internal check

Internal check is an integral function of the internal control system. It is an arrangement of duties of the staff members in such a way that the work performed by one person is automatically and independently checked by the other. Internal check system has the following objective:

• To allocate work among employees in an efficient manner so as to ensure smooth functioning of the organization.
• To protect the business from carelessness and fraud.
• To prevent errors and omissions.
• To facilitate the preparation of financial statements.
• To keep moral pressure over the staff.
• To safeguard the assets of the business.
• To detect errors and rectify them early.
• To ensure and produce   adequate and reliable accounting information.
• To comply with statutory requirements.

Limitations of internal check

Internal check my not be efficient unless the functions of the organization are clearly identified and properly arranged. Some important limitations of internal check are :

• Employees doing repetitive and routine work may develop negligence and carelessness.
• The system of internal check is more expensive and time consuming.
• Internal check may lead to duplication of work and increase the workload of employees.
• This system is not applicable for small organization where there are only few employees. Only large organizations having number of departments and complexity of jobs can get benefit of this system.
• There are possibilities for committing frauds and manipulations with the collusion of other employees.
• As same work is done by the employees day after day the job becomes boring and the employees lose their creativity.
• Risk of the statutory auditor increase if the internal check is not dependable and efficient.

Difference between internal check and internal control

Internal control	Internal check
1.  It consists of all the methods and procedure adopted to assist in achieving the objective of efficient conduct of business. It includes internal check and internal audit.	1. it is a system of allocation of responsibility, division of work, and methods of recording transactions, where the work of an employee is checked continuously by another.
2.Internal control is broader aspect in which internal check play a vital role.	2.Scope of internal check is narrower compared to internal control
3.Internal controls are designed and documented at the corporate management level.	3.Internal checks are implemented to al organizational level such as tactical and operational level.
4.The system proves to be costly in case of small business. Because more number of employees are engaged.	4.It is a part of internal control and a method of division of work, therefore it Does not add to the cost.
5.It includes financial and non financial controls.	5.It is only one method of internal control. It is mainly concerned with the organizational plan of the business so as to ensure better efficiency in the operation.
6.Its object is to ensure adherence to management policies, safeguarding of assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records.	6.Its objective is to ensure that no one employee has exclusive control over any transactions and their recording in the books.
7.Internal control provide for built in MIS reports.	7.The summary of day to day transactions work  as report to the senior.

Principles Of Internal Check

There are certain guidelines to be followed while establishing an internal check system. It is called principles of internal check system. The important principles are:

• Division of work and specialization

Each employee is allocated work according to his capabilities and skills. It may increase the efficiency of the employees. And the employee gains experience by doing the same job and thus specialization of work is possible.

• Rotation of work

Employees are changed from one job to another periodically. This will help them to develop multiple skills and also avoid boredom from doing same job.

• Well-established policies and procedure

Policies and procedures are laid down by management. This will avoid confusion and deadlock in the flow of work.

• Cross checking of transaction

Entries or documents made by one employee are automatically checked or etherized by the work of another employee.  

• Checking for errors and omission

Periodically checking for errors and omissions must be done to ensure that the books of accounts are free from errors and omissions.

• Compliance with statutes

The internal check system should comply with statutory requirements. The system should generate accounting information and reports to be submitted to management and external parties.

• Accounting principles

There should be prompt recording of transactions by following accounting principles generally accepted.

• Safeguarding assets

The internal check system should ensure protection of assets from frauds and misappropriations by periodical verification of assets.

• Documentation

Proper documents are to be prepared and kept under internal check system. there should be an efficient filling and documentation system.

• Office automation

The organization should use labour saving devices like computers, time recording machines, cash registers, printers, etc. It reduces the scope for manipulations and also ensures better efficiency in office work.

Objectives Of Internal Control

Control is an important function of management .in large organizations it is not possible to supervise the work of each and every employee. Internal control system is used by the management to co-ordinate and controls the business operations and work of employees.

Following are the important objectives of internal control system:

• Efficient management

Internal control system helps  to improve the efficiency of the management.

And also helps to organize functions efficiently and achieve better co-ordination among Employees.

• Protection of assets

Internal control system can safeguard assets of business from losses. Such as: misuse or misappropriations of assets by employees.

• Reliability of accounting information

Internal control system prevents errors and frauds. Therefore, the accounting information will be more accurate and reliable.

• Detection of errors and fraud

Errors and frauds may be detected and corrective measures taken under a system of good internal control.

• Statutory requirement

Internal control system is also necessary to comply with statutory requirements. Only an efficient internal control system can adhere to these statutory requirements.

• Efficient use of MIS (Management Information System)

Internal control system can provide quick and timely information to management for decision making. Thus it enhances the Efficiency of the Management Information System within the organization.

Internal control and its features

Meaning

Internal control is a part of the overall managerial control system. It is employed to see that the business is conducted in an orderly and efficient manner. The internal control system includes both financial and non financial control measures. It ensures reliability of accounts , timely presentation of accounting information and protection of assets. The internal control reduces chances of errors and frauds.

Definition

According to spicer and peglar ” internal control is best regarded as indicating the whole system of controls, financial and otherwise, established by the management in the conduct of a business, including internal check, internal audit and other forms of controls”.

Features of internal control

• It is a part of the overall managerial control of an organization.
• It is the duty of the management.
• It includes financial and non-financial control measures.
• It is used to safeguard the business from losses, frauds, and manipulations.
• Internal check and internal audit are the two important aspects of the internal control system.
• The internal control reduces chances of errors and frauds.
• The statutory auditor can identify whether the internal control system is efficient and effective. He can also give suggestions to the management for improving the system.