Before knowing about internal Audit, we have to know about Audit Firm. Audit Firm means the independent accounting firm regularly engaged by Regency to review its quarterly financial statements and provide an audit report with respect to their annual financial statements.
The basic principles of financial internal control are explained below: Financial and accounting operations must be separated that is the handling of cash and the recording of the movement thereof should be done by different persons. Responsibility for the performance of the job must be clearly stated so that there may be no room for doubt or confusion subsequently.
Too much confidence should not be pinned in one individual. Nearly all frauds have been committed by trusted officials or employees. It is interesting to note that frauds have occurred owing to their being trusted. Relation principle relating to transfer of an employee from one job to another should be the inflexible guiding rule. This is an effective safeguard against collusion and is recognized as an important canon of sound organization.
Mechanization of the work wherever feasible and practicable should be resorted to, mechanical devices such as cash register, recording time clocks, calculation machines should be introduced. A system of control accounts should elegantly be fitted in the book keeping system.
The work should be so arranged that work done by one employee should be properly checked by independent employee. Such continuous and constant checking goods moral control and the errors and the frauds cannot go undetected. Internal auditing refers to an assessment activity managed within a corporation as a check to the entity. Its main function is to monitor control within the corporation.
The task of internal auditing is determined by organization itself, and its goals differ from those of the external auditor who is appointed to report independently.
The depth and goals of internal auditing vary widely and depend on the volume and structure of the body and the requirements of its administration.
Ordinarily, the importance of internal auditing can be seen by one or more of the following:
► Implementing and monitoring of sufficient internal control. That is the duty of management that demands proper attention on a permanent basis. Internal auditors are ordinarily assigned definite task by management for reviewing controls, monitoring their function and suggesting improvements for them.
► Inspection of monetary and operational information. This may include review of the means used to recognize, determine, categorize and report such information and definite inquiry into individual items as well as in depth testing of balances, transactions and procedures.
► Review of the economy, effectiveness and efficiency of operations including non-financial controls of the corporation.
► Review of fulfilment of laws, regulations and other external requirements and compliance with administration policies and commands.