Accounting-Finance

Learning Materials For Accounting, Management , Finance And Economics.

Saturday, February 11, 2012

Concept And Objectives Of Internal Check

auditing , Business
Concept Of Internal Check

What Is Internal Check ?

An internal check is a part of internal control. Internal check is the process of arrangement of duties of various staffs of a business in such way that work is automatically checked by the next staff while performing their duties. Frauds which are committed by a staff are automatically detected and corrected by the another staff. So, it helps a lot in the work of final audit. For example, a staff records the expenditure in a book and another staff posts them into ledger, another staff checks and verifies the ledger and payment is made by another staff. So, the work of one staff is checked by the another staff while performing their works so that errors and frauds committed by one staff are detected and prevented by the another staff.

Objectives Of Internal Check

 Following are the objectives of internal check system:

1. To eliminate the frauds and errors which may be committed by the staffs.

2. To prevent misappropriation of cash or stock.

3. To ensure the reliability of information produced by the accounting system.

4. To detect errors and frauds promptly which helps to minimize their effects in long term.

5. To exercise moral pressure over the staffs.
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Friday, February 10, 2012

Concept, Objectives And Advantages Of Internal Audit

Accounting , auditing
Concept Of Internal Audit

Internal audit is a review of operations and records undertaken within a business by specially assigned staff. It is a post-transaction review to evaluate the correctness of records and the effectiveness of operations on a continuous basis in an organization by the paying staffs. The term 'internal audit' has been defined as the independent appraisal of activity within an organization for the review of accounting, financial and other business practices as a protective and constructive arm of management. It is a type of control which functions by measuring and evaluating the effectiveness of other types of controls. Internal audit deals primarily with accounting and financial matters, but it may also properly deal with matters of an operating nature.

The work of internal auditor is more or less the same as that of external or professional auditor. Being the employee of the organization, s/he has to see that there is no waste and inefficiency in the organization. An auditor has to ensure that the organization incurs liabilities in respect of its valid and legitimate activities. S/he has to make efforts to find out the weakness of the internal control and internal check system followed in the organization and suggest necessary improvements.

Many large organizations have a system of internal audit within the organization as a integral part of internal control. Internal auditing is a staff function rather than a line function and the internal auditor does not exercise direct authority over other persons in the organization.

Objectives Of Internal Audit

 The objectives of the internal audit can be summarized as follows:

1. To verify the correctness, accuracy and authenticity of the financial accounting and statistical records presented to the management.

2. To confirm that the liabilities have been incurred by the organization in respect of its valid and legitimate activities.

3. To comment on the effectiveness of the internal control system and the internal check system in force and to suggest ways and means to improve these systems.

4. To facilitate the early detection and prevention of frauds.

5. To examine the protection afforded to company's assets and use of them for business purpose.

6. To identify the authorities responsible for purchasing assets and other items as well as disposal of assets.

7. To ensure that the standard accounting practices which have to be followed by the organization are strictly followed.

8. To undertake special investigation for the management.

9. To assist management in achieving the most efficient administration of the operation by establishing procedures by complying with company's operating policies.

Advantages Of Internal Audit

 The advantages of internal audit are as follows:

1. Staffs remain alert because their work shall be checked by the internal auditor. So, accounting remains correct.

2. Internal audit helps to detect errors and frauds and provides suggestions to improve them which helps the management to take corrective action.

3. Internal audit detects the misuse of resources in time which helps to reduce unnecessary expenses.

4. Internal audit checks the efficiency of staffs which helps to increase the efficiency of them.

5. Internal audit checks the books of accounts, detects errors and frauds and helps in its correction which makes the act of final auditor easier.

6. Internal audit increases the morale of honest staff because evaluation of performance of any staffs will be made at any time.
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Advantages And Disadvantages Of Management Audit

Accounting , auditing
Advantages Of Management Audit

1. Management audit provides information about strong and weak points of the management after reviewing policies and programs. So, it helps to the smooth operation of an organization.

2. Management audit provides suggestions to the management which helps to maintain effective management.

3. Management audit helps the management providing suggestions to attain goal of an organization.

Disadvantages Of Management Audit

1. Management auditor cannot understand the practical problems. So, the suggestions provided by them is theoretical but not practical.

2. Scope of management audit is vague. So, it does not help to achieve specific goal.

3. Generally management gives more emphasis on maintaining books of accounts rather than concentrating on other factors. So, it consumes time of farsighted management.
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Concept, Functions And Objectives Of Management Audit

Accounting , auditing
Concept Of Management Audit

Management audit is an emerging concept of auditing. It has been originated from America. Management audit is an act of evaluation of all the activities of all the departments with a view to provide appropriate suggestions to the management to help their work. In other words, management auditing is a future oriented task which evaluates timely in all the levels of management like production management, sales management etc. The main objective of management audit is to improve the profit earning capacity, work of management, objectives of program, social objectives and human resource development so that organizational goal can be easily attained. It refers to the existence of control system, compliance of rules and regulations, process of managerial decisions etc.

Functions Of Management Audit

 Management audit is a difficult and complex task. It performs the following functions:

1. Management audit identifies the objectives of an organization if such objectives are not set up.

2. Management audit allocates the overall objectives of an organization in small parts.

3. Management audit reviews the structure of organization and asset of the organization and decides whether goals can be obtained or not.

4. Management audit examines all the scope of work and liability centers.

5. Management audit provides valuable suggestions to the management after the evaluation of all above facts.

Objectives Of Management Audit

 Main objectives of management audit are as follows:

1. To formulate the goal of an organization.

2. To ensure the fulfillment of goals.

3. To help management to improve the activities and procedures.

4. To help all the members of management to make effective discharge of their duties.

5. To help in the improvement of profits.
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Advantages Of Cost Audit

Accounting , auditing
The important advantages of cost audit are briefly discussed as follows:

A. Advantages Of Cost Audit To The Management

1. Cost audit provides reliable cost data for managerial decisions.

2. Cost audit helps management to regulate production.

3. Cost audit acts as an effective managerial tool for the detection of errors, frauds and irregularities so that reliable and smooth functioning of the system is continued.

4. Cost audit reduces the cost of production through plugging loopholes relating to wastage of material, labor and overheads.

5. Cost audit can fix the responsibility of an individual wherever irregularities or wastage are found.

6. Cost audit improves efficiency of the organization as a whole and costing system in particular by constant review, revision and checking or routine procedures and methods.

7. Cost audit helps in comparing actual results with budgeted results and points out the areas where management action is more needed.

8. Cost audit also enables comparison among different units of the factory in order to find out the profitability of the different units.

9. Cost audit exercises moral influence on employees which keeps them efficient and alert.

10. Cost audit ensures that the cost accounts have been maintained in accordance with the principles of costing employed in the industry concerned.

B. Advantages Of Cost Audit To The Shareholders

1. Cost audit ensures that proper records are maintained as to purchases, utilization of materials and expenses incurred on various items i.e wages and overheads etc. It also makes sure that the industrial unit has been working efficiently and economically.

2. The cost audit enables shareholders to determine whether or not they are getting a fair return on their investments. It reflects managerial efficiency or inefficiency.

3. Cost audit ensures a true picture of company's state of affairs. It reveals whether the resources like plant and machinery are being properly utilized or not.

C Advantages Of Cost Audit To The Society

1. Cost audit tells the true cost of production. From this the consumer may know whether the market price of the article is fair or not. The consumer is saved from the exploitation.

2. Cost audit improves the efficiency of industrial units and thereby assists in economic progress of the nation.

3. Since price increase by the industry is not allowed without justification as to increase in cost of production, consumers can maintain their standard of living.

D. Advantages Of Cost Audit To The Government

1. Cost audit assists the 'Tariff Board' in deciding whether tariff protection should be extended to a particular industry or not.

2. Cost audit helps to ascertain whether any particular industry should be given any subsidy in order to develop that industry.

3. Cost audit provides reliable data to the government for fixing up the setting prices of the various commodities.

4. Cost audit helps the government to take necessary measures to improve the efficiency of sick industrial units.

5. Cost audit can reveal the fraudulent intentions of the management.

6. Cost statements may be helpful to authorities in imposing tax or duty at the cost of finished products.

7. Cost audit facilitates settlement of trade disputes of the companies.
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Objectives Of Cost Audit

Accounting , auditing
The following are some of the objectives for which cost audit is under taken:

1. To establish the accuracy of costing data. This is done by verifying the arithmetical accuracy of cost accounting entries in the books of accounts.

2. To ensure that cost accounting principles are governed by the management objectives and these are strictly adhered in preparing cost accounts.

3. To ensure that cost accounts are correct and also to detect errors, frauds and wrong practice in the existing system.

4. To check up the general working of the costing department of the organization and to make suggestions for improvement.

5. To help the management in taking correct decisions on certain important matters i.e to determine the actual cost of production when the goods are ready.

6. To reduce the amount of detailed checking by the external auditor if effective internal cost audit system is in operation.
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Concept Of Cash Audit And Cost Audit

Accounting , auditing
What Is Cash Audit ?

Audit of cash receipts and payments only is known as cash audit. Auditor should be careful while conducting cash audit because there are chances of frauds. An auditor should check in detail all the documents, voucher and books of accounts while conducting cash audit. An auditor should provide suggestions to the client in the report after finding out the position of cash to conduct various programs and to prevent misuse of cash. Its report is to be presented to the appointing authority.

What Is Cost Audit ?

The term 'cost audit' refers to the audit of cost records. The cost auditor is appointed to check the cost accounting records in order to ascertain their accuracy and also to ensure that cost accounting plan as laid down by the company is carried out. Cost audit is an audit of actual performances. Cost audit acts as an effective managerial tool for the detection of errors, frauds, inconsistencies and irregularities in cost accounting records. Cost audit is different from the financial audit as the latter is an examination of financial books and records in order to see whether or not the financial statements represent a true and fair view of the state of affairs of the organization while the former is the verification of cost accounts and a check on adherence to the cost accounting plans.
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