Auditing: Meaning, Objectives, Types of Audit, Audit Programme, Internal Check and Internal Control
Auditing: Meaning, Objectives, Types, Audit Programme, Internal Check and Internal Control tests the conceptual framework of audit.
Core rules
- Audit is an independent examination of financial statements to express an opinion on truth and fairness. The primary objective is the audit opinion; detection and prevention of fraud and error are secondary.
- Types: statutory, internal, external, government, tax, management, performance, special, continuous, final and interim audit.
- Audit programme is a written list of procedures and tests for a client; it gives direction and evidence of work done but can become rigid.
- Internal control is the overall system safeguarding assets and ensuring reliable records. Internal check is a subset: division of duties so one person's work is checked by another.
Worked example
In cash receipts, internal check means the cashier receives cash, a clerk records the cash book, and a separate person prepares the bank deposit slip and reconciles the bank. No one person controls the entire transaction. An audit programme for purchases then tests the sequence: purchase order, goods received note, supplier invoice, entry in purchases book and payment.
Traps
Do not say the primary objective is fraud detection; distinguish internal check from internal control; an audit programme is a tool, not a substitute for professional judgement; statutory audit is not the same as internal audit.