L32 Audit As Control Tool

Audit as Control Tool – 1) Management Audit “ The management audit is defined as being an investigation of a business from the highest level downwards in order to ascertain whether sound management prevails throughout, thus facilitating the most effective relationship with outside world and the most efficient organization & smooth running internally.” Basic Aims- Leslie Howard  To evaluate and appraise the Ability, Efficiency and effectiveness of Organizations peoples (management team), policies, plans, and programs it pursues.  Assess the strengths and weaknesses of an organization’s structure, its management team and its corporate culture  Focuses the managers and their activities.  Helps organization to get adapted to changing environment through optimal allocation and utilization of resources. 10/17/08

[email protected]; VIM Piune

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Audit as Control Tool – 1) Management Audit – When needed? Usually Needed When Companies go for•Joint Ventures • Mergers and Acquisitions, • Re-Organizations, • Major financial Offerings,(Issues) • When organization’s existence is at stake. • Establishing the value of human resources.

10/17/08

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Audit as Control Tool – 1) Management Audit – Areas & steps Steps & Area

Evaluation Criteria

1. Objectives and Plans

Review in the light of current situation

2. Organization

Study and analysis of org. chart

3. Policies & Practices

Find actions to improve effectiveness

4. Regulations

Compliances to external authorities

5. Systems & Procedures

Find/Detect irregularities/defects if any

6. Control

Adequacy and effectiveness.

7. Operations

Control, communication, coordination aspects

8. Personnel

Requirement and suitability

9. Physical equipment and layout

Effectiveness and efficient

10/17/08

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Audit as Control Tool – 2) Cost Audit • It is not compulsory but the central government can make it so for a firm. • Propriety Audit – Audit of executive actions having bearing on the costs. • Efficiency Audit – Ensure optimum utilization of resources & its flow to most remunerative channels.

10/17/08

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Audit as Control Tool – 2) Cost Audit – Objectives • Verification of cost accounts ( Policies & Procedures) • Comparison of Actual with Standards. • Isolation of abnormal costs to highlight them. • Develop cost consciousness • Examination of variances & their interpretations. • Examination of operating efficiencies • Analysis of method applied for O/H allocation, valuation of stock. • Making inter and intra firm comparison. 10/17/08

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Audit as Control Tool – 2) Cost Audit – Objectives • Provide help in product pricing. • Investigation of cost structure of industries approaching the Govt. for tariff protection etc. • Ensuring optimum utilization of resources. • Detection & correction of abnormal loss of material and time. • Improve productivity of resources – (diversify to most worthy) 10/17/08

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Audit as Control Tool – 2) Cost Audit – Elements it covers • Cost accountancy and its adequacy. • Financial position. • Production – Capacity and capacity utilization. • Process of manufacturing. • Raw material – cost, consumption and allied expenses. • Power and fuel – cost & consumption. • Wages and salaries – Direct and indirect labor, cost of production, administration 10/17/08 and selling. [email protected]; VIM Piune

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Audit as Control Tool – 2) Cost Audit – Characteristics • Stores and spare parts – • Depreciation. • Overheads- factory, administrative, sales, interest, commission, bonus etc. • Royalties and technical fees. • Sales – Quantity, amount and exports. • Abnormal recurring costs – strike, lockout, break downs, accidents. • Other items – Expoenses which are directly attributable to product. 10/17/08

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Audit as Control Tool – 3) Internal Audit – “The examination and evaluation of the adequacy and effectiveness of the organizations system of internal control and the quality of performance in carrying out assigned responsibilities.” Institute of Internal Auditors

10/17/08

[email protected]; VIM Piune

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Audit as Control Tool – 3) Internal Audit – 1. Ensure correctness of accounting data through periodic review of organization’s systems and procedures. 2. Examining and reporting of operations and records. 3. Examination and appraisal of other control mechanisms. 4. Independent evaluation without fear or favor. 5. Compliances with regulations specified by company as well as by external authorities. 6. Evaluate problems independently in terms of management control & suggest improvement. 7. Ensure reliability & promptness of MIS. 8. Ensure effective accounting control system. 9. Ensure adequacy, reliability, accuracy of financial data. 10. Ensures the principle management by system. [email protected]; VIM Piune

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Audit as Control Tool – 3) Financial Audit- Objectives 1. Compliance with accounting policies & procedures laid down by management in financial accounting and reporting. 2. Prevention of fraud. & detection of errors. 3. Plugging the loopholes in financial management policies laid down. 4. Verify whether the documentation & work station is in conformity with internal control system. 5. Compliance with statutory requirements. 6. Compliances with the Manufacturing and Other Companies(Auditors report) Order 1988 10/17/08

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Thanks……….

10/17/08

[email protected]; VIM Piune

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