Internal Audit, Management and Operational Audit

INTERNAL AUDIT,
MANAGEMENT AND
OPERATIONAL AUDIT
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AUDITPEDIA 5.0 FOR CA FINAL
INTERNAL AUDIT, MANAGEMENT AND

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OPERATIONAL AUDIT
Internal Audit
Internal Audit provides Independent assurance on effectiveness of internal controls and risk management
processes to enhance governance and achieve organisational objectives
The objectives and scope of IA Function as per SA 610 includes:

wMonitoring of internal controls : Monitoring through Exception Reports of Continuous Control
Management Tool in ERP system
wExamination of financial and operating information: Internal Audit for identifying reasons of
Year to Year deviation in Profit & Loss Account Items
wReview of operating activities: Reviewing Store Management Practices vis-a-vis Indutry's Best
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Practices
wReview of compliance with laws and regulations: Review of compliance with newly applicable Tax
Regime.
wRisk management: Evaluation and management of Risk Exposure for complex financial instruments
transactions
wGovernance: Assessment of Governance Process in the accomplishment of objectives on ethics
and values.
Applicability of Internal Audit :

Sec 138 of Companies Act, 2013 read with Rule 13 of Companies Accounts Rules 2014
The following shall be required to appoint an internal auditor:
wEvery Listed Cos
wUnlisted public Companies
ØDeposits >= 25 Cr (anytime) or
ØPSC >= 50 Cr or
ØO/S Loans or Borrowings (Bank/FI) > 100 Cr (anytime) or
ØT/o >= 200 Cr
wEvery Private companies
ØBorrowings > 100 Cr (anytime) or
ØT/o >= 200 Cr
Internal Auditor
lIndividual/firm/body corporate - CA/Cost aaccountant /any other professional whether in practice or
not
lMay or may not be employee of Co.
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Main Responsibilities of Internal Auditor
wMaintain adequate system of Internal Control (IC) by continuous Examination
wTo operate independently of accounting staff
wNot involve himself in executive functions to maintain objective outlook
wTo observe facts & situations & bring them to notice of authorities
wAssociate closely with Management & keep knowledge upto date about business
wAt all times, enjoy independent status
Scope of Internal Auditor's work includes review of:

1.Internal control systems & procedures
wReview and Assess design & operating efficiency & effectiveness of IC
wTo minimize overall internal audit risk, inherent risk, control risk & detection risk
wControls should be inbuilt in operating functions - cost effective
wReview should consider limitations of Internal Control - cost benefit, human errors, collusion & abuse
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by process owner
2.Review of Custodianship & Safeguarding of Assets

•Involves Verification of existence of assets
•Review Segregation of Duties is in place
•Ensure all assets accounted fully
•Review control systems for intangible assets e.g. procedures related to credit control
3.Review of Compliance with Policies, Procedures & Regulations

•Point out specific weakness & suggest remedial action
4.Review of Relevance & Reliability of Information

•Review information systems
•Examine whether reporting by exception i.e reports highlight significant & distinctive features
5.Review of Organisation structure

Ÿ Manner in which activities of organisation are grouped for managerial control
Ÿ Examine organisation chart - check structure is simple & economical & no function enjoys undue
dominance over the others
Ÿ Responsibilities of staff at headquarter shouldn't overlap with CEO of operating units
Ÿ Reasonableness of Span of control of each executive (no. of subordinates that executive controls)
Ÿ Where dual responsibilities can't be avoided, primary one should be specified
Ÿ Evaluate process of management development in enterprise
6.Review of utilisation of Resources
Ÿ Check proper operating std & norms established
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Ÿ Whether – detailed enough to be identified with specific operating responsibility
Ÿ Review method of establishing stds & norms
Ÿ Wide divergence – b/w actual performance & std – reasons maybe considered
7.Accomplishment of Goals & Objectives

Ÿ Objectives clearly stated & attainable
Ÿ Expressed in quantifiable terms
Ÿ Sufficient flexibility in plan to permit improvements
Integrity, Objectivity & Independence of Internal Auditor

1)Internal Auditor shall be free from undue influences which force him to deviate from truth. The
independence shall not only be of mind but also in appearance.
2)Internal Auditor shall be honest, truthful & be person of high integrity
3)Internal Auditor shall complete work in highly objective manner. Shall not allow be biased & prejudice
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to override objectivity especially while arriving at conclusions or reporting opinion.
Qualities of Internal Auditor

1)SpecInternal Auditorl expertise for evaluating mgt controls esp. financial & accounting controls
2)Accounting & financial expertise
3)Expected to evaluate operational performance & non-monetary controls. Requires basic knowledge of
technology & commercial practices of entity
4)Basic knowledge of commerce, laws, taxation, cost accounting, tax, economics, EDP systems,
5)Understanding of management principles & techniques (MTP)
6)By his conduct should provide assurance to management that the confidentiality will be maintained
Internal Audit Report

SIA 370 Reporting by Internal Auditor in 2 stages:
1)At end of assignment Internal Audit Report covering specific area, fn or part of entity is prepared
highlighting key observations. Issued with details of manner of conducting assignment & key findings
from audit. Issued to Auditee with copies to local management agreed in planning phase.
2)On periodic basis, at close of plan period, report on Internal Audit activities covering Entity & plan
period is prepared by Chief Internal Auditor (or EP in case of external service provider). Normally done
on Quarterly basis & submitted to Audit Committee. A part of Internal Audit report may form part of
the Periodic Report shared with AC.
This SIA pertains to responsibility to issue only Internal Audit report pertaining to specific assignments.
Key Elements of Internal Audit Report

a)Overview of scope, objective & approach (SOA) of audit assignments
b)Fact that Internal audit completed as per Standard on Internal Audit (SIA)
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c)Executive summary of key observations covering important aspects & specific to scope of assignment
d)Summary of corrective actions required (or agreed by management) for each observation
e)Nature of assurance, if any, which can be derived from observations.
Content & form depends on Prof judgment of Internal Auditor in consultation with auditee & Draft report
to be issued before Final Report
Follow Up
Ÿ As per SIA 390 Monitoring & Reporting of Prior Audit Issues(PAI), Chief Internal Auditor responsible
for continuous monitoring closure of PAI through timely implementation of action plans.
Ÿ The responsibility to implement action plans stays with the management.
Ÿ Internal Auditor should review follow up action taken by management based on his observations. If no
action taken in reasonable time - draw management attention to it. Where management not acted on
his suggestions or implemented recommendations - Internal Auditor ascertain reasons
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Ÿ Where management has accepted recommendations & initiated necessary action, Internal Auditor
periodically review the manner & extent of implementation of recommendations & report which
recomm. not implemented fully/partly.
Relationship between Internal Auditor(IA) & External Auditors(EA)

Ÿ Scope & objective of Internal audit dependent on size & structure of entity & requirements of
management. IA reviews a/c systems & internal control, examines financial & operating info for mgt,
there's a lot of overlap b/w work of IA & EA.
Ÿ Work done by IA has important bearing on work of EA. Function of IA is integral part of system of
Internal Control.
Ÿ It's a statutory requirement as per sec 138, Audit committee in consultation with IA formulate scope,
functioning, methodology, & periodicity (SFMPE) for conducting Internal audit.
Ÿ Its obligatory for stat auditor (EA) to examine scope & effectiveness of work carried out by Internal
Auditor. He should examine internal audit dept of org, strength of staff & qualification & powers.
Ÿ Extent of independence exhibited by Internal Auditor & status in organisation, determine effectiveness
of audit.
Ÿ EA should evaluate internal audit function to determine NTE of compliance & substantive procedures.
Difference between Internal & External Audit
Basic Internal Audit External Audit

Examination Ongoing audit function performed within an Audit function performed by independent
organisation by separate internal audit dept body not part of organisation
Appointment Examines operational efficiency of Examines accuracy & validity of F.S.
organisation
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Users of Report By mat By members

Management Stakeholders
Period Continuous process throughout year Done once in a year
Opinion On the effectiveness of operational acts of On truthness & fairness of F.S.
organisation
Status of Auditor Could be employee Can't be employee
SA 610 Deals with certain matters with certain aspects on relationship between Internal & External
Auditor:
Determining whether in which Areas & what extent the work of IA function can be used:
Evaluation of IA Function: Includes Appraisal Activity, Evaluation adequacy and effectiveness of
Internal Controls
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Scope of IA Function: Monitoring Internal controls; Review of operating activities
Objective of evaluation of IA Function: Assurance to management, Evaluate and improve the
effectiveness
Sole responsibility of audit opinion à External Auditor
External auditor has to obtain SAAE that work of INTERNAL AUDITOR Function or
Internal auditor providing direct assistance is adequate for purpose of audit
Scope of SA:
a)Using work of INTERNAL AUDITOR Function in obtaining audit evidence &
b)Using internal auditors to provide direct assistance (DA) under Direction, Supervision &
Review of External auditor (DSR)
This SA doesn't apply if entity doesn't have INTERNAL AUDITOR function
Objectives of Auditor where entity has internal audit function:

Ÿ To determine if work of INTERNAL AUDITOR function or direct assistance of Internal auditor
can be used
Ÿ If using work of INTERNAL AUDITOR Function, determine whether work is adequate for Audit
purpose
Ÿ If using INTERNAL AUDITOR to provide DA, to DSR their work
Internal Audit Function: A function of entity that performs assurance and consulting activities
designed to evaluate and improve effectiveness of entity's governance, risk management and
internal control processes (GRC).
Direct Assistance: The use of internal auditors to perform audit procedures under direction,
supervision and review of external auditor.
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Evaluating whether work of Internal Audit Function can be used for Audit Purpose
(a)The extent to which internal audit function's organizational status and relevant
policies and procedures support objectivity of internal auditors;
(b)The level of competence of internal audit function; and
(c)Whether internal audit function applies a systematic and disciplined approach, including
quality control. (DISCO)
Determining Nature & Extent of work of Internal Audit Function that can be used
Types of Work of internal audit function that can be used by external auditor include following:
! Testing of operating effectiveness of controls.
! Substantive procedures involving limited judgment.
! Observations of inventory counts.
! Tracing transactions through the information system relevant to financial reporting.
! Testing of compliance with regulatory requirements.
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! In some circumstances, audits or reviews of financial information of subsidiaries that are not
significant components to group (where this does not conflict with the requirements of SA
600).
To determine adequacy of specific work performed by internal auditors for external auditor's purposes,
external auditor shall evaluate whether:
i.The work was performed by internal auditors having adequate technical training and
proficiency;
ii.The work was properly supervised, reviewed and documented;
iii.Adequate audit evidence has been obtained to enable internal auditors to draw reasonable
conclusions;
iv.Conclusions reached are appropriate in circumstances and any reports prepared by internal
auditors are consistent with results of work performed; and
v.Any exceptions or unusual matters disclosed by internal auditors are properly resolved.
Written Agreements: Prior to using internal auditors to provide direct assistance for purposes of audit
(a)Obtain written agreement from authorized representative of entity that INTERNAL AUDITOR will
be allowed to follow external auditor's instructions, and entity will not intervene in work the
internal auditor performs for external auditor; and
(b)Obtain written agreement from internal auditors that they will keep confidential specific matters
as instructed by external auditor and inform external auditor of any threat to their objectivity.
Areas where Internal auditor can't provide Direct Assistance:

(a)Involve making significant judgments in audit;
(b)Relate to higher assessed RMM where judgment required in performing relevant audit
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procedures or evaluating audit evidence gathered is more than limited;
(c)Relate to work with which internal auditors have been involved and which has already been,
or will be, reported to Mgt or TCWG by internal audit function; or
(d)Relate to decisions external auditor makes in accordance with this SA regarding internal audit
function and use of its work or direct assistance.
Significant judgments include following:

4 Assessing risks of material misstatement (RoMM) ;
4 Evaluating sufficiency of tests performed;
4 Evaluating appropriateness of management's use of going concern assumption;
4 Evaluating significant accounting estimates; and
4 Evaluating the adequacy of disclosures in the financial statements, and other matters
affecting the auditor's report.
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Documentation: External auditor uses Internal Auditor to provide direct assistance
(a)Evaluation of existence and significance of threats to objectivity, and level of competence of
internal auditors used to provide direct assistance;
(b)Basis for decision regarding nature and extent of work performed by internal auditors;
(c)Who reviewed work performed and date and extent of that
review in accordance with SA 230;
(d)Written agreements obtained from authorized representative of entity and the internal auditors
(e)Working papers prepared by internal auditors who provided direct assistance on the audit
engagement.
Management Audit
Management Audit and Operational Audit
The scope and content of management audit should cover everything that we know as operational
audit and, in addition, it should also include review of adequacy and competence of objectives, plans,
policies and decisions of top mgt.
¨Management audit is concerned with “Quality of managing”, whereas operational audit focuses on
“Quality of operations”.
¨Management audit is “Audit of management” while operational audit is “Audit for the
management”. The focus of Management audit is on “Quality of Decision Making” rather than
effectiveness or efficiency of operations.
¨The basic difference b/w two audits, then, is not in method, but in level of appraisal. In a
Management audit, the auditor is to make his tests to the level of top management, its formulation
of objectives, plans and policies and its decision making.
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What knowledge necessary to be a mgt. auditor?
i.Purpose for which organization. has been created
ii.Management structure including delegation of authority, planning & budgeting
iii.Reports required & reports actually received for Management
iv.Internal Controls
v.Production Planning
vi.Factory layout, design & installed capacity
vii.Sales Management & sales planning
viii.Personnel policy & personnel mgt including requirements, training, welfare, incentives
& disincentives
Desirability or Importance of Management Audit

¨The principle reason is the need for Detecting & overcoming current managerInternal Auditorl
deficiencies in ongoing operations. It represents a positive, forward looking approach that
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evaluates
Ø how well Management accomplish its objectives
Ø how effective management is planning, organising, directing, controlling, & coordinating
org acts.
This evaluation is aided with Management Audit Questionnaire.
¨Managerial problems & operational difficulties can be spotted before the fact. They can help
pinpoint problems developing from small scale.
Ïts another Management tool to achieve org objectives. Capability of mgt audit questionnaire to
pinpoint problem areas is a plus factor.
¨Management audit is Clearly helpful in case of ailing industries, to isolate problems & account for
their ailments.
Öften, Management audits conducted prior to investments in entity, M&A, or b4 any other
strategic decision.
Organising the management Audit

1.Devising statement of Policy
¨Management support must be reflected clearly & policy statement to be specific
Ït should Spell out clearly scope & status of Management auditing in enterprise, authority
to carry out audits, issue reports, make recommendations, & evaluate corrective action
¨Statement of policy should Lay in clear terms scope of activities to be performed by
Management auditor
¨Statement must categorically say that Management auditor is capable of reviewing admin &
Management controls over any activity within Co.
2.Location of audit function within organisation
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The function should be entirely independent as possible of pressures from various group.
3.Allocation of Personnel
lIt is important that all Persons selected & assigned should have good understanding of
audit theory, fundamentals of organisation & Management, the principles and effective
method of control and requirement of conducting scientific appraisal
lBasic knowledge of:
ØTechnology & commercial practices
ØCommerce, law, tax, cost a/c, Economics, EDP systems
4.Staff training program

lIt Will help to achieve quality in Performing audit assignments, it acts as an incentive for
drawing capable people in dept & to retain them.
5.Time & other aspects
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Time and other aspects varies Depending on nature & scope of work.
6.Frequency
It is considered to be long time frame, but interval shouldn't exceed 3 years.
Conducting management Audit

1.Getting facts through interviews
·Adequate prep necessary to avoid waste of time & effort, Begin by stating purpose of audit.
·Emphasis on getting facts essentInternal Auditorl to review & appraise the area of study,
Exchange of info should be friendly & conducted in open atmosphere
2.Management Audit Questionnaire

·Aims at comprehensive & continuous examination of org Management, its concerned with appraisal
of mgt actions in accomplishing org objectives
·Primary objective it to Highlight weakness & deficiencies of mgt for possible improvements, It
enables Management auditor to synthesise elements causing mgt difficulties & deficiencies
(d&d)
Management Audit Reports

The reporting results covers wide spectrum of types, the important one are as follows.
1.Oral Reports: For emergency reporting and should befollowed up with written report
2.Interim written report: Inform about significant developments during audit for early
consideration
3.Regular written reports: it will vary based on audit assignments and generally are Issued after
audit
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4.Summary written reports:
ØAlso referred as Flash Reports, They summarize individual reports. These are primarily for audit
committees or higher level Management
ØEspecially useful for top level managers who don't actively review individual reports. Also useful
for general auditor to see overall reporting effort with more perspective & on integrated basis
Steps to prepare Mgt Audit Report

1.Planning the audit report
2.Supporting Information: Supplement report with audit evidence that sufficiently &
convincingly supports conclusions
3.Preparing Draft Report - Before issue of final report
1.Writing & issuing final report: When completely satisfied with draft report, before that
discuss conclusions & recommendations with Management
2.Follow up audit report: Review whether follow up action taken by Management
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3.Action/response of mgt on Audit report: Where mgt has not acted upon suggestions of
auditor or not implemented his recommendations, auditor should ascertain reasons for same
Behavioural Aspects encountered in Management Audit

Nature & Cause of behavioural problems:
1.Relationship conflict between mgt auditor & other personnel
Management auditors maybe employee of Co. & other persons will regard them as employee only. On
other hand, Management auditor being specialist of field, may think their approach & solutions, only
way to resolve mgt problems.
2.Control: Management auditor evaluates effectiveness of controls, auditees may feel that
auditor's report might create incompetent impression on Management, this creates feeling of
antagonism
Causes of Antagonism are as follows:
ØFear of criticism stemming from adverse audit findings.
ØFear of changes in day-today working habits because of changes resulting from audit
recommendations.
ØPunitive action by superiors prompted by reported deficiencies.
ØInsensitive audit practices - reports which are overly critical, reports which focus on
deficiencies only, and the perception that auditors gain personally from reporting
deficiencies.
ØHostile audit style - a cold and distant aspect is a lack of understanding of the
auditee's problems, an absence of empathy, an excessive concentration on insignificant
errors, & prosecutional tone when asking questions.
3.Resistance to change: Auditor's study of systems & procedures give room for
recommendations for changes in systems.
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Solutions to behavioural problems:
There is a need to demonstrate to extent possible that:
1.The audit is part of an overall programme mandated by higher-level authority to meet higher-
level organisational needs for both protection and maximum constructive benefit.
2.The objective of review is to provide maximum service in all feasible managerInternal Auditorl
dimensions.
3.The review will be conducted with minimum interference with regular operations of the
operating personnel.
4.the responsible officers will be kept fully informed and have opportunity to review findings
and recommendations before any audit report is formally released.
It is essential to create an atmosphere of trust and friendliness so that audit reports

will be understood in their proper perspective.
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1.Constructive criticism - He should also make obvious in his report the value of his comments in
tangible terms. Only then would suggestions carry weight with the auditees and they will feel
convinced that the auditor has been objective in his remarks in the report.
2.Reporting methods - Adopting friendly but firm tone in report. It is always possible to disagree
without being disagreeable and to criticise without being critical. The reports should concentrate on
areas that need improvement rather than listing inefficiencies and deficiencies in performance of
auditee.
3.Participative approach - Auditor's reports have better acceptability if improvements suggested are
discussed with those who have to implement them and made to feel that they have participated in
the recommendations made for improvements.
Operational Audit
Operational Audit: It involves evaluating the effectiveness & efficiency of operations. Not a one-time
activity should be conducted at least once in 3 years.
Operational vs Internal Audit
The difference in approach of both of these audits is illustrated below:
1.Perception - Traditionally, internal auditors have been engaged in a sort of protective function. They
view and examine internal controls in financial and accounting areas to ensure that possibilities of
loss, wastage and fraud are not there; they check accounting books and records to see, whether
internal checks are properly working and resulting accounting data are reliable.
2.Issues - The basic difference that exists in technique of operational auditing is in auditor's role in
recommending corrections or in installing systems and controls.
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A further distinction lies in attitude and approach to whole auditing proposition. Every aspect of
operational auditing programme should be geared to management policies, objectives and goals.
3.Objectives - Main objective of operational auditing is to verify fulfilment of plans and sound
business requirements as also to focus on objectives and their achievement objectives; operational
auditor should not only have a proper business sense, he should also be equipped with thorough
knowledge of policies, procedures, systems and controls, he should be intimately familiar with
business.
Today, however, concept of modern internal auditing suggests that there is no difference in internal and
operational auditing. The modern internal auditing performs both protective as well as constructive
functions.
Qualities of Operational Auditor

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The Auditor should possess some very essential personal qualities to be effective in his work.
1.His knowledge beyond accounting and finance would be scanty and this is reason which should make
him even more inquisitive.
2.He should ask the who, why, how of everything. He should try to visualise whether simpler
alternative means are available to do a particular work.
3.He should try to see everything as to whether that properly fits in business frame and organisational
policy. He should be persistent and should possess attitude of skepticism.
4.He should imbibe collaborative and constructive approach rather than fault-finding approach and
should give feeling that his efforts are to help to attain an improved operation and not merely fault
finding.
5.If auditor succeeds in giving feeling of help and assistance through constructive criticism, he will be
able to obtain co-operation of persons who are involved in operations. Try to develop a team
comprised of people of different backgrounds. The involvement of technical people in operational
auditing is generally helpful.
Why Operational Audit?

The need for operational auditing has arisen due to inadequacy of traditional sources of information for
effective management of company where management is at a distance from actual operations due to
layers of delegation of responsibility, separating it from actualities in organisation.
Operational audit is considered as a specialised management information tool to fill the void that
conventional information sources fail to fill. Conventional sources of management information are
departmental managers, routine performance report, internal audit reports, and periodic special
investigation and survey. These conventional sources fail to provide information for best direction of
departments. The shortcomings of these sources can be stated as under:
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(I)Executives and managers are too preoccupied with implementation of plans and achieving of targets.
(ii)Managers or their aides are generally relied upon for transmitting information than for booking for
information or for analysing situations.
(iii)The information that is transmitted by managers is not necessarily objective - often it may be
biased for various reasons.
(iv)Conventional internal audit reports are often routine and mechanical in character and have
definite leaning towards accounting and financial information. They are also historical in nature.
(v)Other performance reports contained in annual audited accounts and routine reports prepared by
operating departments have own limitations.
(vi)Surveys and special investigations, are very useful but these are at best occasional in character.
Also, they are costly, time consuming and keep departmental key personnel busy during the period
they are on.
Types of Operational Audits:
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Functional Audits: Categorizing the activities of business, Focuss on one function of the organization say
production engineering. Considerable expertise in one area. Disadvantage is it fails to evaluate
interrelated functions.
Organizational Audit: Focusses on entire Organizational unit
Special Assignments: They arise at the request of management.
Objectives of Operational Audit

ÜAppraisal of Controls
ÜEvaluation of Performance
ÜAppraisal of Objectives and Plans
ÜAppraisal of Organisational Structure: Organisational structure provides line of relationships and
delegation of authority and tasks.
In evaluating organisational structure, aspects that may be considered by operational auditor may be
as follows:
(i)Is organisational structure in conformity with management objectives?
(ii)Whether organisational structure is drawn up on basis of matching of responsibility and
authority?
(iii)Whether line of responsibility from top to bottom is clearly discernible from structure?
(iv)Whether delegation of responsibility and authority at each stage is clear and overlapping are
avoided?
Review of system & procedures:

To determine whether the system or procedure is meeting current requirements, the following among other
things should be considered:
1.Is the system or procedure designed to promote achievement of company's objectives, and is it
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accomplished effectively?
2.Does the system or procedure operate within framework of organisational structure?
3.Does system or procedure adequately provide methods of control in order to obtain maximum
performance with least expenditure of time and effort?
4.Does system or procedure provide means for effective coordination between one deptt and another?
5.Have all required functions been established?
Management Audit Questionnaire:

Ït is an important tool for conducting the management audit.
Üsed to make an inquiry into important facts by measuring current performance.
¨Primary Objective
lHighlights weaknesses & deficiencies of organization.
lReview management functions of planning, organizing, directing & controlling. Evaluating an
organization's ongoing operations by examining its major functional areas.
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¨Designing of MAQ-
lThere are three possible answers to the MAQ: Yes, No, Not Applicable
Ø“Yes” indicates acceptable performance
Ø“No” indicates unacceptable performance & therefore, it requires written explanation
Ø“Not Applicable” indicates that the question does not apply.
Differences between Financial and Operational Auditing

(i)Purpose - The financInternal Auditorl auditing is concerned with opinion whether historical
information recorded is correct or not, whereas operational auditing emphasizes on effectiveness
and efficiency of operations for future performance.
(ii)Area - FinancInternal Auditorl audits are restricted to matters directly affecting approprInternal
Auditorteness of presented financInternal Auditorl statements but operational auditing covers all
activities that are related to efficiency and effectiveness of operations directed towards
accomplishment of objectives of organization.
(iii)Reporting -The financInternal Auditorl audit report is sent to all stockholders, bankers and other
persons having a stake in the Organisation. However, operational audit report is primarily for
management.
(iv)End Task - The financInternal Auditorl audit has to report findings to persons getting the report as
its end objective, however, the operational auditing is not limited to reporting only but includes
suggestions for improvement also.

Internal Audit, Management and Operational Audit

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INTERNAL AUDIT,

INTERNAL AUDIT, MANAGEMENT AND

The objectives and scope of IA Function as per SA 610 includes:

Applicability of Internal Audit :

Scope of Internal Auditor's work includes review of:

2.Review of Custodianship & Safeguarding of Assets

3.Review of Compliance with Policies, Procedures & Regulations

4.Review of Relevance & Reliability of Information

5.Review of Organisation structure

7.Accomplishment of Goals & Objectives

Integrity, Objectivity & Independence of Internal Auditor

Qualities of Internal Auditor

Internal Audit Report

Key Elements of Internal Audit Report

Relationship between Internal Auditor(IA) & External Auditors(EA)

Difference between Internal & External Audit

Basic Internal Audit External Audit

Users of Report By mat By members

Objectives of Auditor where entity has internal audit function:

Areas where Internal auditor can't provide Direct Assistance:

Signiﬁcant judgments include following:

Desirability or Importance of Management Audit

Organising the management Audit

2.Location of audit function within organisation

4.Staff training program

5.Time & other aspects

Conducting management Audit

2.Management Audit Questionnaire

Management Audit Reports

Steps to prepare Mgt Audit Report

Behavioural Aspects encountered in Management Audit

It is essential to create an atmosphere of trust and friendliness so that audit reports

Qualities of Operational Auditor

Why Operational Audit?

Types of Operational Audits:

Objectives of Operational Audit

Review of system & procedures:

Management Audit Questionnaire:

Differences between Financial and Operational Auditing

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