MF0013 – INTERNAL AUDIT & CONTROL

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ASSIGNMENT

 

 

 

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

 

Q.1 Define and explain the term auditing. “Personal qualities of an auditor are important for the successful conduct of audit”. Comment

 

Ans : Definition of auditing :

 

The term audit is derived from the Latin term ‘audire,’ which means to hear. In early days an auditor used to listen to the accounts read over by an accountant in order to check them . Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia, Greece, Egypt. Rome, U.K. and India. The Vedas contain reference to accounts and auditing. Arthasashthra by Kautilya detailed rules for accounting and auditing of public finances

 

 

Explanation of auditing :

 

Auditing is such an examination of books of accounts and

 

 

 

 

Q.2 Write the key objectives of a good internal audit system. Narrate the points of dissimilarities between external audit and internal audit.

 

Ans : Key objectives of a good internal audit system :

 

 

1. To determine whether controls over financial and operating data provide managers with reasonable assurance that the financial and operating data is accurate and reliable (i.e., that information gathering and reporting has been properly planned, organized and directed).

 

2. To determine whether controls over compliance with policies, procedures, plans, laws and regulations provide managers with reasonable assurance that proper compliance actually occurs (i.e., that compliance activities have been properly planned, organized and directed).

 

3. To determine whether controls over assets provide managers with reasonable assurance that assets exist and are protected against loss

 

 

 

 

Q.3 Give the role of internal auditor in the Company’s Management. List down the duties of auditor Under Section 581ZG.

 

Ans : Role of internal auditor in the company’s management :

 

The main role and responsibilities of the auditor should be set out in written terms of reference and should include:

• to monitor the integrity of the financial statements of the company, and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them;

• to review the company’s internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent

 

 

 

Q.4 The effectiveness of the internal control system can be ensured if the important aspects of the company’s operations are kept in mind. Explain the characteristics of an effective internal control system. Write the elements of internal control.

 

Ans : Characteristics of an effective internal control system :

 

1. Control Environment:

 

The control environment is the company’s attitude toward internal controls. Known as “tone-at-the-top,” the control environment is a necessary condition for effective internal control, because even the best-designed systems can be thwarted if management overrides the controls that are in place. Indicators of an effective control environment include having a whistleblower hotline or discipline policies that take violations of internal control seriously. Management override of controls or shortcuts are signs that the control environment may be deficient.

 

2. Risk Assessment:

 

 

 

 

 

Q.5 Describe general EDP controls. Explain the appraisal of accounting system and related internal control.

 

Ans : General EDP controls :

 

These controls apply to a wide range of expressions that systematically threaten the integrity of all applications processed within the Computer Based Information System (CBIS). Following are the sub divisions of general controls:

 

Operating system controls

 

1. Operating System allows users to share and access common computer resources. It’s the

computer’s control program.

2. If OS‟s integrity is compromised, controls within individual accounting applications may

be neutralized.

3. Since the OS is common to all users, the larger the computer facility, the greater the scale of potential damage.

 

 

 

Q.6 Explain the internal control systems in insurance companies. Write down about the reporting internal control weaknesses.

 

Ans : Internal control systems in insurance companies :

 

The following principles will be applicable to insurance undertakings’ Internal Control:

 

1. Control culture :

 

The board of directors is responsible for promoting a high level of integrity and for establishing a culture within the company that emphasises and demonstrates to all levels of personnel the importance of internal control. Management is responsible for the implementation of the internal control Culture and principles. All personnel need to understand their role in the internal control process and be fully engaged in the process.

 2. Risk assessment :

 

 

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