Importance of Internal Controls and Audit Procedures

Importance of Internal controls
and audit procedures to conclude
audit opinion
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Executive Summary
This report is aimed at highlighting various procedures and aspects related to internal
control. It also aims at discussing aspects related to audit report in which auditors express their
opinions related to their assessment of the financial statements of the entity. This report discusses
all concepts in accordance with the auditing standards prescribed by the International Standards
on Auditing (ISA) and includes discussion about auditing, internal control and its components,
risk management and risk register, audit evidence procedures, elements of audit report and audit
procedures to identify subsequent events. This report determines various concepts and their
theoretical understanding in combination with practical examples to clearly grasp the
aforementioned concepts related to auditing.
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Table of Contents
Executive Summary.........................................................................................................................2
Chapter 1: Introduction....................................................................................................................4
Chapter 2: Understand how to carry out tests and collect audit evidence.......................................4
2.1 Importance of internal control and risk management.......................................................4
2.2 Assessment of audit procedures to obtain audit evidence................................................6
Chapter 3: Understanding how to carry-out evaluation and preparation audit reporting................8
3.1 Basic element of Audit report...........................................................................................8
3.2 Audit procedures to identify subsequent events.............................................................10
Chapter 4: Conclusion....................................................................................................................12
Chapter 5: References....................................................................................................................13
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Chapter 1: Introduction
Audit refers to assessment of statements, reports, processes, etc. related to an organisation
to produce opinion on fair and accurate representation of business records. In usual business
sense, audit refers to examination of financial statements of the business organisation. However,
auditor needs to assess some non-financial information as well to identify the impact of non-
financial factors over the financial statements of the business, to present a holistic audit report.
Purpose of audit is to obtain a view that whether all the financial transactions of the business in
the specified period are properly recorded or not and whether all the information presented in
financial statements is according to the defined standards or not (Abernathy and et.al., 2017).
Those standards are either defined or approved by government body such as International
Standards on Auditing (ISA). Audit can be conducted by both internal auditor who is employee
of the company or by external auditor. Scope of internal auditor is much wider than external
auditor, who relies on the data provided by internal auditor and management of the company to
conduct examination and develop a report. Therefore, external audit must be conducted by an
independent party i.e. auditor needs to be someone who is not related to the business, so as to not
have a biased audit report.
Importance of auditing
Audit is important as it is aimed at ensuring credibility of financial statements. Audit
report helps in having a detailed overview as well as additional perspective of an external party
to improve business processes. It helps company becoming more reliable in the eyes of investors
and promote its accountability to improve its credit rating in the market. Internal audit report acts
as tool for management to identify the lags in their processes and room for improvement. Audit
report by external auditors is very important for all the stakeholders (Bhasin, 2015). For
example, it is used by shareholders to ensure that information provided by company is true, fair
and accurate and by management as a legal evidence to shareholders, creditors, government, etc.
Chapter 2: Understand how to carry out tests and collect audit evidence
2.1 Importance of internal control and risk management
Internal Control and its objectives
Internal control refers to those rules, regulations, mechanisms and procedures which are
put in place by a company to ensure integrity and accountability of the information, processes,
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