INTERNAL AUDITING

INTERNAL AUDITING

The growing recognition by the management of the advantages of good internal control system and the complexities of an adequate system of internal control in government and privately owned hospitals has led to the development of internal Auditing as a method or form of control over all controls.

Giles (2001) notes that emergency of the internal auditor as a specialist in internal control is the result of an evolutionary process that is similar in some ways to he evolution of independent auditing.

Internal auditing is an element of internal control system set up by the management of an organisation to examine, evaluate and report on accounting and other controls in operation.

However, Lucey (2002) described internal auditing as a review of operations and records, sometimes a continuous undertaken without an organisation by specially assigned staffs.

Internal audit is defined as an independent appraisal activity established within an organisation as a service to it. It is a control which functions by examining and evaluating the adequacy and effectiveness of other controls.

FEATURES OF INTERNAL AUDITING

From the above definitions, two main features of internal auditing emerge:

a) INDEPENDENCE: Although an internal audit department is part of an organisation, it should be independent of the line management whose sphere of authority it may audit. The department should therefore report to the board or to a special internal audit committee and not to the finance director.

The reason for this is best seen by thinking about what could happen if the internal audit department reported some kind of irregularity to a finance director without realizing that the finance director was actually involved.

b) APPRAISAL: Internal audit is concerned with the appraisal of work done by other people in the organisation, and internal auditors should not carryout any of the work themselves. The appraisal of operations provides a service to management, providing information on strengths and weakness throughout the organisation.

SCOPE AND OBJECTIVES OF INTERNAL AUDITING

the scope and objectives of internal audit are as follows:

I. Review of the accounting and internal control system: Management is responsible for the establishment of adequate accounting and internal control systems. Often, internal audit is assigned specific responsibility for reviewing the design of the systems, monitoring their operations and recommending improvements.

II. Examination of financial and operating information: This may include review of the means used to identify, measure, classify and report information and specific enquiry into individual items including detailed testing of transactions, balances and procedures.

III. Review of economy, efficiency and effectiveness: This review may include the non-financial controls of an organisation.

IV. Review of compliance: This review may cover compliance with laws, regulations and other external requirements and with internal policies and directives and other requirements including appropriate authorization of transactions.

V. Special investigation: One example is suspected frauds.

The essentials for effective internal auditing are as follows:

I. Independence: The internal auditors should have independence in terms of organisational status and personal objectivity which permits the proper performance of their duties.

II. Staffing and Training: The internal audit unit should be appropriately staffed in terms of numbers, grades, qualifications and experience, having regard to its responsibilities and objectives. Training should be a planned and continuing process at all levels.

III. Relationships: The internal auditors should seek to foster constructive working relationship and understanding with the management, external auditors, with any other review agencies and where one assets with audit committee.

IV. Due care: The internal auditors cannot be expected to give total assurance that control weakness or irregularities do not exist, but they should exercise due care in fulfilling their responsibilities.

V. Planning, controlling and recording: Like the external auditors, internal auditors should adequately plan, control and record their work. As a part of planning, the internal auditors should identify the whole range of systems within the organisation.

VI. Evaluation of internal control system: The internal auditors should identify and evaluate the organisations internal control system as a basis for reporting upon its adequacy and effectiveness.

Therefore, Nepworth (2000) opines that the most important concern of internal audit is to ensure that financial dealing of organisation are conducted in proper manner, that no fraud or misappropriation of funds or accounts occurs and that proper system of financial control including internal check arrangement, that is one part of the system automatically checking on another exists.

REFERENCES

Anderson, R. J. (1999). Federal Audit, concept and Techniques. Toronto: Pitman Publishing Company.

Bigg, and Davis (2000). Internal Auditing, 4th Edition. London, H. F. L Publishers.

Hermanson, E. S (2002). Accounting principle. Columbia Charika Publisher.

Nwoko, C. (2008). Internal Control in Business. Enugu: Abic Books Ltd.