9: Internal Audit Flashcards
What is an internal audit and is it compulsorary
An independent appraisal activity. A feature of large companies.
Not compulsory, but UK Corporate Governance Code stresses the need for good internal control.
Listed companies should reconsider the need for internal audit on an annual basis
Who in a company would do an internal audit?
In large organisations, the internal audit would be a separate department
In a company, it might be the responsibility of individuals to perform specific tasks
Some companies outsource their internal audit to an accounting firm
How can an internal audit department be independent?
An audit department cannot be completely independent of management
Can retain objectivity:
- having no involvement in the operations activities of the company
- reporting to an appropriate level of management eg. Audit committee or board of directors
What are the 6 roles of internal audit?
Monitoring the overall risk management policy for effectiveness
Reviewing the economy, efficiency and effectiveness of operations
Reviewing compliance with laws and other external regulations
Monitoring systems of internal control
Examining financial and operating information
Special investigations ie. Into fraud
How does internal audit compare to external audit?
Internal audit is much broader in scope, covering any aspect of the company’s operations. The techniques may be the same but the objectives are different.
It is required, appointed and reports to only the Board of Directors/Audit Committee (as opposed to being required by law and appointed by shareholders)
The scope of the assignment is required by management
