Financial Analysis Report: Internal Control System of B Ltd - 2018

This report presents a financial analysis of B Ltd's internal control system, conducted by external auditors in 2018. The executive summary highlights the importance of strong internal controls for minimizing errors and ensuring effective company management. The analysis section assesses the company's existing internal control system, considering its effectiveness, adherence to international standards, and the roles of the audit department and board of directors. The report evaluates the auditors' perspective on the company's internal controls, including the need for timely updates and management's effectiveness in maintaining these controls. It also discusses the importance of statutory compliance and the need for the audit department to balance compliance with efficiency. The report suggests improvements such as experienced and adaptable audit staff, and the need for the audit department to report to all board members. The conclusion emphasizes the significance of independent examinations, effective internal controls, and the importance of management considering the internal audit reports to mitigate risks and ensure the company's long-term success.

Financial Analysis
2018

1
By student name
Professor
University
Date: May 12 , 2018.
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Executive Summary
Internal audit is the strength and the backbone of nay company. It helps in analyzing the overall internal
management of the company to ensure that there are appropriate controls installed that will help the
company to function without any errors. It is very important that strong internal controls should be
there as the overall chances of errors and mistakes will decrease. In this assignment the internal controls
system of B ltd would be analyzed and checked by the external auditors to give their suggestion on if the
company is functioning effectively or not and what are the overall changes that are needed to increase
the efficiency of the company.
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Contents
Introduction………………………………………………………………….........................................................3
Analysis………………………………………………………………………………………………………………..…………..…6
Conclusion………………………………………………………………………………………………………………..……….…6
References.....……………………………………………………………..............................................................9
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Introduction
Internal control is defined as the system of accounting and auditing that would help in to ensure
that the company is achieving its overall objectives effectively and there are no discrepancies in the
management of the company. It helps in providing an assurance that the financials of the company are
reliable and they are prepared to the best of ability of the management of the company and there is no
loophole in that. The internal controls are examined by the external auditors to provide their opinion
whether these internal controls have been placed accurately or not and to the best of the ability of the
company. It will help in ensuring that the overall risk element with respect to the company is low and
the management is functioning to the best of their abilities and the external auditors can depend on the
internal controls to take effective decisions with respect to the company and its financial (Alexander,
2016). When we see closely it can be seen that in cases where the internal controls are not strong
enough there are high chances of fraud from the management and the management might take undue
advantage of their position to fuel the overall operations of the company for their personal satisfaction.
In this case we are assessing the internal control system of B ltd where we see that the company is
apparently having a very strong internal audit system in place that has been working from past many
years to deliver a proper control in the functioning of the company (Abbott & Kantor, 2017).
Analysis
As external auditors there are few points that we need to consider when we deal with such types of
examination namely:
 The auditors need to check whether the company is having proper internal controls in place or
not that would help in the overall internal audit of the company.
 The auditors need to check whether these controls are timely updated to keep them in sync
with the overall operations of the company.
 The auditors need to check how effective has the management of the company been in making
sure that these controls are operating effectively.
 Controls are that elements that removes any possibility of any fraud in the company, it will keep
a check on the moral of all the employees along with the actions of the management of the
company.
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 Strong controls will ascertain that the company is not facing any issues with management and
execution of work (Boghossian, 2017).
a.In case of B ltd the company is having a strong internal control system, in which over the past few
years 90 percent of the overall work of the department was achieved. It was also seen that the people
who were managing the system where having years of experience which made them apt for this role of
control and functioning. The overall programs of audit of the company were based on the international
standards of auditing that made them feasible enough to be executed in the long run. Previously the
internal audit department was reporting to the CFO but now they would be reporting to one of the
directors. There are managing the department that includes auditing experts, professional graduates
and people with years of experience in this field thus that made their overall work very reliable and
handy. It was seen that the board of directors believed that the aim of the department with respect to
audit should be to increase the overall efficiency of work and not focus on mere compliance with work
that are based on rules and regulations. They felt that the audit department was not functioning to the
best of their ability. The board of directors gave little importance to the overall audit report in board
meetings, they did not consider it good enough. When we analyze all this closely we see that this
perception of the board is wrong, the main aim of the audit department is to see that the internal
controls of the company are in place and that should follow the requisite rules and regulations (Chariri,
2017). Companies cannot ignore the statutory compliance that they need to deal with but considering
the same the company needs to give importance to efficiency with respect to management of the
company to produce effective results. The aim of the audit department should be that their work is
done in such manner that the rules are complied with and efficiency is also achieved in case of the
company. There are few areas in which the audit department needs to work, they should see to it that
people who are managing the internal department of audit for the work should be experienced but
along with that they should be able to adapt to changes as and when required to fulfil the needs of the
company. We see that most of the people who are working there are having years of experience which
is a good aspect but saying that it is very important that they must not be change resistant.
One more very important point mentioned is that companies can achieve 90 percent of their goals
in sync with the internal audit department works, but the aim should be that 90 percent of the goals
should be achieved as that ten percent would raise chances of risk that might cause a lot of loss (Chron,
2017). One more thing that the internal audit department needs to change is that they should report to
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all the board of directors in a meeting instead to channeling their work through one director. This will
give that director undue advantage and they can take use of that to influence the work of the company.
b. The work of the internal audit department should be relied on, because there past records have
been good, they have been able to achieve 90 percent of their overall goals in relation to the company.
They are having years of experience and have provided quality work thus that needs to be considered.
And given the fact that internal controls are very important for companies to function effectively. It will
help them to achieve all their goals and produce good results (Gray, 2018). Given the fact that the
internal department of the company is more concerned with compliance with statutory rules and
regulations is good as that will help in saving the company from unnecessary issues. It can be put forth
that all the points related to the internal department of B ltd is positive enough hence the management
should have no issue in delaing with them as it will help in providing quality results. It is extremely
wrong if the management is putting less importance to the reports of internal audit because it will
increase the chances of risk and fraud for the company. It will hamper the growth of the company in the
long run. The management will not be able to suffice to the needs of the regulatory world. As an
external auditor, the dependence on the internal controls of the company is huge, hence it is important
that the internal audit department of the company should function effectively so that in the long run the
possible profitability can be achieved (Maynard, 2017).
Conclusion
Audit is the independent examination of the books of the company to know whether the
financial statements are correct or not and given importance to that is very important for the overall
success of the company. If there are any issues in the internal controls of the company the management
will only suffer and they will fail on several aspects which will be responsible for the loss of the company.
Hence the crux would be that new people should be appointed, rotation of work must be there,
effective changes should be implied so that in future the chances of risk is minimum. And the internal
audit report of the company must be considered by the management and should not be ignored in any
case.
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References
Abbott, M. & Kantor, A., 2017. Fair Value Measurement and Mandated Accounting Changes: The Case of
the Victorian Rail Track Corporation. Australian accounting Review.
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Boghossian, P., 2017. The Socratic method, defeasibility, and doxastic responsibility. Educational
Philosophy and Theory, 50(3), pp. 244-253.
Chariri, A., 2017. FINANCIAL REPORTING PRACTICE AS A RITUAL: UNDERSTANDING ACCOUNTING
WITHIN INSTITUTIONAL FRAMEWORK. Journal of Economics, Business and Accountancy, 14(1).
Chron, 2017. five-common-features-internal-control-system-business. [Online]
Available at: http://smallbusiness.chron.com/five-common-features-internal-control-system-business-
430.html
[Accessed 07 december 2017].
Gray, D., 2018. 'Extraordinary turnaround': Big miners pushing ASX towards 10-year high. The Sydney
Morning Herald.
Maynard, J., 2017. Financial accounting reporting and analysis. second ed. United Kingdom: Oxford
University Press.
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