The Internal auditing or Auditors Report- Financial Audit: GAAS/ISA. The internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance process. Internal auditing is a catalyst for improving an organizations effectiveness and efficiency by providing insight and recommendations based on analyses and assessments of data and business process. With commitment to integrity and accountability, internal auditors provide value to governing bodies and senior management as an objective source of independent advice. The professionals called internal auditors are employed by organization to perform the internal auditing activity. The scope of internal auditing within an organization is broad and may involve topics such as the efficiency of operations the reliability of financial reporting, determining and investigating fraud, safeguarding assets, and compliance with laws and regulations.


Internal auditor or auditing frequently involves measuring compliance with the entity’s policies and procedures.

  However, internal auditors are not responsible for the execution of company activities; they advise management and the Board of Directors (or similar oversight body) regarding how to better execute their responsibilities. As a result of their broad scope of involvement, internal auditors may have a variety of higher educational and professional backgrounds.

Public – traded corporations typically have an internal auditing department, led by Chief Audit Committee of the Board of Directors, with administrative reporting to the Chief Executive Officer.

The profession is unregulated though there are one number of international standard setting



Internal Auditing is an essential and indispensable part of any system of internal control.

          In fact, there can be no internal control without internal  audit. This is largely because even the most effective internal control system can be rendered useless by:

  1. Top management itself-which may purposely or ignorantly override established control structures.
  2. The workers either through fatigue, misunderstanding, carelessness or other human factors.
  3. Change in the business environment, which can render in hitherto effective system useless with the passage of time.
  4. Changes in technology e.g. introduction of new machines such as computer to replace a manual processing system.
  5. Fraudsters. Who may pluck any Loopholes in the system with view to committing fraud.

In order to guard against the foregoing. It becomes imperative that any management that is worth its name must establish an independent and functional internal audit until charged with the responsibilities for:

  1. Safeguarding the assets of the Company.
  2. Ensuring that established controls are strictly adhered to.
  3. Continuously updating existing controls to block any discovered loopholes and studying the business environment and recommending improvements.
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                          INTERNAL AUDITING DEFINED:                         

Internal Auditing is defined as “an independent appraisal function established by the management of an organization for the review of an internal control system as a service to the organization” (Institute of Internal Auditors IIA). It objectively examines, evaluates and reports on the adequacy of Internal Control as a Contribution to the proper, economic, efficient and effective use of resources.

          From the above definition, the following facts emerge:

  1. Internal auditing is carried out by an employee of the organization under the control of his employers for this reason his independence is limited.
  2. Internal auditing is an internal function prescribed (defined)- Internally by the management of the organization.

c.  Since Internal Auditing is an appraisal and review function the internal auditor of independence from the administrative and operating department.

  1. Internal auditing is a service to the organization, therefore, is very important part within the control environment element of an entity’s internal control structure.




The major objectical part of internal Auditing are as followings in an organization:

  1. Ensures that management policies are carried out at the right time.
  2. Ensures that information supplied to management is complete, accurate and reliable.
  3. Ensures that the organization’s internal control system is well designed and implemented, and that it works in practice.



This covers a wide range of activities, including:

  1. Reviewing the reliability and integrity of financial and operating information and the means used to identify measure, classify, and report such information.
  2. Reviewing the systems establish   to ensure compliance with those policies, plans, procedures, laws, and regulations that could have a significant impact on operations and reports and determining whether the organization is employed.
  3. Reviewing Operations or programs to ascertain whether results are constituent with established objective and goals and operations being carried out as planned.



          Each Internal Audit should be planned and documented, and the plan should cover

  1. Establishing audit objective and scope of work.
  2. Obtaining background information about the activities to be audited.
  3. Determining the resources necessary to perform the audit.
  4. Performing as an appropriate, and on-site survey to become familiar with the activities and controls to be audited, to identify areas for audit emphasis and to invite auditee comments and suggestions.
  5. Writing the audit program.
  6. Determining how, when, and to who audit results will be communicated.
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Apart from being truly independent in the performance of his duties an internal auditor should have the following attributes in order to be effective in the performance of his duties.

–                     The internal auditor should be a qualified accountant and should have support – staff of the right number, education and experience.

–                     He and his team members should be adequately trained in their respective areas of responsibilities.

–                     He should be capable of fostering a constructive and cordial relationship with the management, and the external auditor.

–                     He should be able to bring to bear due care, skill and diligence as are expected of internal auditors.

–                     He should be able to plan his work in such a way that all parts of the organization are systematically covered;

–                     He should be capable of collecting sufficient, relevant and reliable evidence for his report;

–                     He should be capable of providing timely, accurate and comprehensive information to management to enable it make informed decisions.



          In many organizations cases abound where some non-audit staff deliberately refuse to cooperate with the internal auditor. Infact in most cases practical steps are taken by some non-audit staff to frustrate the work of the internal auditor thereby rendering him ineffective. Some of such negative practical steps include:

–                     Management deliberately operating with inadequate accounting system with the intent to conceal audit evidence normally obtained from accounting records.

–                     Deliberate refusal by staff to supply vital information on the pretence that such information were not available; or delay in providing required documents needed for audit inspection. This often forces the auditor to device other methods or techniques to obtain the required information, sometimes at much greater cost to the organization.

–                     Deliberately frustrating the internal audit until through non-recognition of its importance mainly manifested in poor funding of the department.

–                     Using threats and gifts to influence the auditor’s objectively and opinion. Deliberately undermining the internal control structure by not passing invoice and other relevant matters to the internal audit unit for prepayment checks.

Management and non-audit staffs that deliberately refuse to cooperate with internal auditors obviously have reasons for their actions. Some of the known reasons include:

  1. An attempt to cover fraud and internal errors.
  2. Ignorance of the objects and benefits of internal auditing. Some management personnel often erroneously see the internal auditor as a bloodhound which noses around to smell something wrong; others see him as a detective who looks around everybody with suspicion and yet some see him as a witch-hunter who takes pride in faulting or chiding their works.
  3. Non-audit – staffs ignorance of their responsibilities to the internal auditors. Some members of staff fell to realize that an auditor unrestricted access to all documents and information is a legitimate right and not a privilege.
  4. Some chief executive/ heads of departments, especially those appraisal accounting background, ignorantly see the review and appraisal function of the internal auditor as an attempt to poke nose and / or usurp their authorities.
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          To improve the efficiency and effectiveness of internal auditing as a major part of internal control in an organization, the internal auditor needs assistance and cooperation from the management team and other non-audit staff. Some typical areas of assistance and cooperation include:

  1. Prompt communication of all necessary information, policy matters, changes in procedures, etc to the internal auditor.
  2. Enhance his independence by removing any restrictions previously placed on his work and allowing him the freedom to plan his work and priorities.
  3. Constantly updating his knowledge through training in information technology, accounting, inventory control, procurement procedures, etc.
  4. Constant support and encouragement to enable him brace up any social rejection that may accompany his work.
  5. Adequately funding the internal audit units to enable it cope with the logistics and other needs of the unit.
  6. Allowing the internal auditor to have unrestricted access to records, accounting and other vital information necessary for the performance of his functions.
  7. Assistance in obtaining information from third parties such as bankers, contractors, subsidiary companies etc.


          The recommendations in an internal audit report organization achieve its goals, which may relate to operations, financial reporting or /legal/regulatory compliance. They may relate to effectiveness (E.g.) whether goals were met or compliance with standards was achieved or efficiency i.e. whether the outputs were generated with minimum inputs.

Audit findings and recommendations also relate to particular assetions, such as  whether the transaction audited were valid or authorized, completely processed in the correct time period, and properly disclosed in financial reporting, among other elements.


IIA’S definition of Audit

IIA definition of Internal Audit”, IIA Retrieved 25 March 2011.

IIA website- Standards

Official website of the International federation of Accountants, IAASB.

Auditing Principles and Practical (Volume 1) U. C. Chukwu.

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