Write note on Balance sheet audit and Internal audit.
Balance Sheet audit:
Balance Sheet audit is a limited audit in which all. the Balance Sheet items are verified viz, assets, liabilities, balance of reserve and provisions, capital profit earned or loss suffered by the firm during the year. Where appropriate, the balances are linked up with the corresponding balances at the previous date e.g., change in the amount if fixed assets may be due to purchasing the assets and also charging of depreciation or sale of asset.
Here the routine audit procedures such as vouching are curtailed. The auditor examines the adequacy of disclosure and complained with statutory requirement if any. Balance Sheet audit is not confined to Balance Sheet items only, wherever appropriate, tests are applied to those items though.
They are shown in the Profit and Loss account but are related ,in one way or the other , with balance sheet time such as depreciation, bad debts etc. Such other accounts may also be scrutinized which can ascertain the nature of accounts i.e., capital or revenue Balance sheet audit is suitable to the organization where there is effective internal control system or mechanized accounting systems
Internal audit is an audit made by a person who is appointed by the business unit to have a constant and regular review of its accounts. Such a person is called internal auditor and is responsible for constant vigil to get the accounts of the organization in such away as to show a true and fair view of the business activities.
The appointment of internal auditor is not compulsory by a statute. The system of appointing an internal auditor helps a lot in prevention and detection of errors and frauds at an early stage. The scope and objectives of such an audit vary from organization to organization depending upon the nature of the business. Internal audit is an integral part of internal control.
The internal auditor, besides checking the accounts is required to report also as to how the system accounting can be improved and how the system of internal check be made more effective,and economical. He report to the management and not to the shareholders. He is an employee of the company and is accountable to the management.
There is no fixed qualification of any kind for an internal auditor but he should have the special expertise necessary for evaluating management control system especially financial and accounting system, Such an
expertise is necessary for an internal auditor to be able to discharge his duties efficiently and effectively. Being an employee of the organization. he is totally free from any kind of management pressure.
Advantages of internal Audit
- The system of internal audit gets an independent status in an organization.
- It is totally free from managerial pressure, it works independently.
- It helps in formulating managerial decisions without actually taking part in it.
- It maintains regular watch and constant review over accounting and financial matters.
- Early prevention and detection of errors and fraud becomes possible due to constant watch over the accounting system.
- It true to improve the internal checks and internal control system to make the working of the enterprise efficient and effective.
Disadvantage of internal Audit
- It is an expensive affair to establish an independent audit system in an organization. Therefore, it is not suitable for small organization.
- Where audit is compulsory, external audit is still required.
- Being an employee, internal auditor remains under management pressure.