mf0013 smu mba summer 2014 IIIrd sem assignment

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SEM 3 FINANCE SUMMER 2014

MF0013 & INTERNAL AUDIT & CONTROL

Q1. Define and explain the term auditing. “Personal qualities of an auditor are important for the successful conduct of audit”. Comment (Definition of auditing, Explanation of auditing, Qualities of an auditor) 2, 3, 2

Answer:

Definition of auditing

“Auditing in its modern concept, is a scientific and systematic examination of books, vouchers and other financial and legal records in order to verify and report upon the facts regarding the financial condition disclosed by the balance sheet and the net income revealed by the profit and loss account.” In the abovementioned definitions, the focus is on the examination of the financial records and report thereon.

Q2. Write the key objectives of a good internal audit system. Narrate the points of dissimilarities between external audit and internal audit. (Key objectives of a good internal audit system, Dissimilarities between external audit and internal audit) 5, 5

Answer:

Key objectives of a good internal audit system

Briefly, the objectives of internal audit may be described as follows:

1. Evaluation of business control system: Internal audit is concerned with ensuring effective and efficient system of accounting control, standard cost control, budgetary control and other functional control.

2. Compliance with standard policies and procedures: Reporting to management about the compliance of standard policies and procedures is an important objective of internal audit.

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Q3. Give the role of internal auditor in the Company’s Management. List down the duties of auditor Under Section 581ZG. (Role of internal auditor in the company’s management, Duties of auditor u/s 581ZG) 7, 3

Answer:

Role of Internal Auditor as a Part of Management

Management is an art and science of conducting the affairs of an organization in such a manner that its goals and objectives are achieved through optimum utilization of available resources. For optimum utilization of available resources, management should quantify its objectives through budget and targets. The role of internal auditors should be to constantly review and monitor the policies, procedures, budget and targets of the organization. Deviations, if any,

Q4. The effectiveness of the internal control system can be ensured if the important aspects of the company’s operations are kept in mind.

Explain the characteristics of an effective internal control system. Write the elements of internal control. (Characteristics of an effective internal control system, Elements of internal control) 4, 6
Answer:

Characteristics of Effective Internal Control System

Internal control is the whole system of controls, financial or otherwise, established by the management in order to carry on the business of the enterprise in an orderly manner, safeguard its assets and secure as far as possible the accuracy and reliability of its records. Now question arises, whether internal control system is her effective or ineffective, how you will determine it. Obviously, there are certain special characteristics of an effective internal control system which are discussed

below:

1. Plan of organization: A proper plan and an appropriate structure of the organization is a must for implementation of

Q5. Describe general EDP controls. Explain the appraisal of accounting system and related internal control. (General EDP controls, Appraisal of accounting system and related internal control.) 4, 6
Answer:

General Electronic Data Process Control

a) Organizational and operational controls

·         relate to plan of the organization and operation of EDP activities;

·         emphasis on segregation of EDP department from source and user departments; and

·         also lays importance on segregation of functions within the EDP department.

b) System development and documentation control

·         are designed to monitor, design, test and document the system and programmes constituting each application;

·         Include:

Q6. Explain the internal control systems in insurance companies. Write down about the reporting internal control weaknesses. (Internal control systems in insurance companies, Reporting internal control weaknesses) 5, 5

Answer:

Internal control system in insurance

Insurance companies paid special attention to the internal control procedures with regard to receipts and payments of cash and cherubs, acceptance of risks, calculation of premiums, making of loans, buying and Selling of investments, payment of commission to agents, and to control over expenses of management. An effective internal control system of an insurance company should provide the following:

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