BDAA3103 Fundamentals of Auditing: Pantech Group Audit Report

This essay provides a fundamental introduction to auditing and explores the distinction between internal and external audit reports, using Pantech Group Holdings Berhad as a case study. It describes the nature of internal audit reports, highlighting their internal focus, discretionary nature, and prep...Read More

FUNDAMENTAL INTRODUCTION AND BASICS OF AUDITING 1
Distinction between internal and external audit report in Pantech Group Holdings Berhad
Student’s Name
Institutional Affiliation

FUNDAMENTAL INTRODUCTION AND BASICS OF AUDITING 2
1.0 Introduction;
Audit reporting is the legal presentation of disclaimer findings issued to the users after an
independent audit examination of the financial books and control systems is done. This reporting
is what is presented in the audit report that is classified as either internal or external depending
with factors outline here below. It should also be known that for illustration purposes I have used
one of the listed companies in Malaysian i.e. Pantech Group Holdings Berhad 2017 reports to
explain the differences between internal and external reports.
2.0 Description of internal audit report
Internal audit is the cross-examination of firms’ practices and operations that see
into it that company’s risks (Lin, Prizing, Vargas, & Bradman, 2011 p 300) i.e. inherent,
detective and controlled are mitigated and controlled thus enabling achievement of strategic
objectives and financial goals. Internal audit report similarly entails business practices
examination of procedures and controls of the firm's internal control systems (So, & Martinov-
Bennie, 2011 p 620) .The internal Audit process is guided by Malaysian Internal Audit
Standards.
The core difference that dictates whether an audit report is internal or external is the users
and conductors of the audit and reports respectively (Erkens, & Bonner, 2012 p 132).On the face
of it internal means operations within the organization, therefore, it is presumed that internal
report is used internally by internal users who are the directors and management at large
(Carcello, Eulerich, Masli, & Wood, 2018 p 27). Internal audit reports are likewise prepared by
persons from the company who act on behalf of the company as agreed hence do so for the
interest of the firm.
Internal Audit report is discretional or rather optional because a firm may opt to do or not
to do an internal audit thus not a mandatory aspect unlike external audit that is a compulsory
legal requirement to all firms in Malaysia and especially by the users of the information i.e.
investors, shareholders and general public as depicted in the Pantech Group Ltd whereby the
shareholders and the public are informed of what was reported in the financial statements onin
pages 34, 35 & 36.
This has ideally made internal audit report appear as though it is an in-house business
affair since its sole purpose is what suits the company progress hence creating some sense of
flexibility and amendments an aspect that show that has no tight operational legal framework like

FUNDAMENTAL INTRODUCTION AND BASICS OF AUDITING 3
what happens to the external audit that no one discretion and quiz of mind or chance is applied
instead the prevailing audit legal framework and standards is what is applied (Obaidat, 2007 p
187).
The internal audit report is prepared by internal auditors who are employees of a
not employed and hired by the company hence are entitled to a salary remuneration and therefore
obliged employees of the company who are expected to safeguard the interest of the company at
all cost whether it is reasonable or not as referenced by regardless is healthy or not. They are
compensated in salary form basis hence are part of the company payroll ( Singh,& Newby,2010
p 320). More illustration is seen on) as the reference in page 45 of the Pantech Ltd Group reports.
This is further illustrated in page 17 of the Pantech Ltd Group Company 2017 report that informs
us that the Audit Committee who conducted and prepared the 2017 Pantech internal audit report
was appointed by the board of directors who were exclusively independent non-executive
directors (Erkens, & Bonner, 2012 p P.130).
3.0 Description of external audit report
External audit, on the other hand, involves examination of annual financial accounts or
books of accounts and statements so as to find out whether they present true and fair position
pursuant to set Audit regulations and framework in place. The findings were done in writing
(hard copy) or in soft copy explaining whether the financial statements present true and fair view
of the firm, is ideally what is referred to as external audit-report.
External audit report whose users are external parties who do not directly relate to the
firm operations as referenced in (Marcu,2018 p 193).These external users are mostly the
shareholders, customers, investors, creditors, financial institutions and of course Malaysian
Government. Similarly, it is prudent to understand that external audit report preparers and
examiners are externally consulted and do work in the best interest of the external parties who
indeed are the user's external users themselves.
External Audit report is always available to the public with all its contents publically
available since they are entirely prepared as per regulations and standards so as to that safeguard
the interest of all the users of the information, hence are always reported and published in
websites and newspapers hence can be accessed in whatsoever means and form a user would
wish to access it (Petraşcu, & Tieanu, 2014 p 2014.P.490). For instance, this external audit report

FUNDAMENTAL INTRODUCTION AND BASICS OF AUDITING 4
for Pantech Group Ltd has been accessed by downloading the annual report from the website of
the listed companies in Malaysia hence the report was and is publicly available.
External audit report on the other hand when it comes to the format of preparation is
unique since it is structured in the format that is guided by the Audit Standards with the sole
aspect of ensuring that presentation of the true and fair view of the firm is reported (Marcu, 2018
p 190).It is likewise structured to ensure there is legal compliance of all audit, accounting and
business regulations set in place. It ideally focuses on the materiality of factual aspects that
directly affects the books of accounts hence do not focus on immaterial factors and if need be
they do separate reporting in the management letters. This is illustrated from pages 22, 36 of
Pantech Group Ltd 2017 Annual Report all the way to page 142 of the same 2017 report.
4.0 Analysis on the differences between internal and external audit report
These two reports i.e. both internal and external audit reports are mostly presented on the
same platform as Company Annual Audit Report. This report starts by explaining the internal
audit findings and control, as well as management, advice and finalizes with the external audit
report done by the audit committee. This is actually what is presented in the 2017 Pantech Group
Holdings Berhad Annual Report whereby in pages 17 the audit committee (Salleh, & Stewart,
2012 p 1370) is outlinedP.1370.) is outline thereafter in page 18 of the same firm summary
report for both internal and external reports are presented. Conclusive analysis of internal audit
report for Pantech Group Holdings Ltd is further seen on pages 18 and 19 of the Annual Report
2017 while for external audit is presented in pages 20 onwards.
Internal Audit report is a more of a tailored report that tend to critically illustrate and
explain how risks and firms goals are managed and helped to be achieved respectively (Knechel,
& Salterio, 2016 p 10) hence concentrate more on directing and advising the management
(Carcello, Eulerich, Masli, & Wood,2018) on what to do so as to curb risks and facilitate
objective achievement by ensuring that internal control systems are adhered and implemented
fully as seen from pages 18, 19, 20 and 21. Internal audit report ideally entails all matters relating
to business operation whether they are material or immaterial the reporting is done base on all
factors business related and especially on risk and internal controls (Bragg, 2012 p 115).This
report has no special approach of reporting and preparation since it is internally used and has no
specific guidelines outlined for follow-up.

FUNDAMENTAL INTRODUCTION AND BASICS OF AUDITING 5
Internal Audit reporting is mostly reported, prepared and presented shallowly inor rather
as a by the way while doing the annual reporting mainly because it involves in-house business
matters but external audit report is mostly done in detail form explaining each and every material
aspect prescribed by the regulation as it is being illustrated in Pantech Group Ltd 2017 Annual
Report whereby internal audit report information are only discussed in pages 18,19 and 20 while
the external audit report covers almost three quarters of the annual report in detail forms and
especially from pages 48 of the Pantech Group Ltd 2017 Annual Report so as to equip the users
of the information with all the relevant material information they might need for decision
makers.
Most internal audit reports are not formally published and shared to the public since it is
only vital to the internal users hence only presented in the annual report only to the Audit
Committee who shares the information to the Board Management as it is revealed in Pantech
Group Ltd 2017 Annual Report Page 20 where we are just informed that the report was just
reported to the management board. Internal reports are therefore not easily published for public
domain hence its availability is only limited to the internal users who are the management per se
(Mayne, 2017 p 100).
The fact that internal audit report is meant to Internal reports since its core purpose are to
examine, control and advice on the on business operation and well-being, subsequent hence
consequent follow-ups and implementation of matters raised and recommended is made so as to
ensure that all query raised in question is fully addressed as referenced in the book written by
(Zhang, 2018 p 270). Likewise, on any quarry raised in internal audit is always done on
piecemeal basis thus ensuring that recommendations and suggestions are implemented
(Zhang,2018.P.270.) This is what has happened to the internal audit report that we are told on
page 20 of the annual report of Pantech Ltd Group Company that it is reported to the board for
their action and attention illustrates the follow-ups done on the internal audit report. External
audit report does not need follow-ups after reporting because it is mostly done not to advise but
to give the true and fair view or picture of the firm hence just give the report and wait for the
next annual external audit and do the same to the extent of even reporting similar material items
that recurred in the previous audit.

FUNDAMENTAL INTRODUCTION AND BASICS OF AUDITING 6
External audit report, on the other hand, is prepared and reported by certified
public accountants and auditors who are appointed by the choice vote made by the shareholders
hence are responsible to the shareholders or rather investors. They are entitled to packages
agreed upon and those which are in conformity with agreed set payment standards known as
audit fee (Chan, Liu, & Sun, 2013 p 1130) for the period they conduct the audit. The independent
external audit firm whose auditors prepared the external audit 2017 report for Pantech Ltd
Company as depicted in page 4 is known as Messrs.’ SJ Grant Thornton a member of the firm of
Grant Thornton International Ltd.
5.0 Conclusion;
Ideally, though the two reports are seen to share a common verb and noun “audit” they
actually differ as explained above. Most large and medium-sized organization in Malaysia are
seen to exercise the two functions i.e. internal audit and external audit so as to have their books,
internal control system processes and financial statements are regularly cross-checked at time
intervals of within the year and at year-end.

FUNDAMENTAL INTRODUCTION AND BASICS OF AUDITING 7
Ideally though the two reports are prepared by two different people’s i.e. internal and
external auditors they both seem to differ when it comes to purpose of audit, the audience to
which they are reported to or rather the user, legal regulations implemented in its reporting and
preparation and finally the period of time when the report is prepared and reported
References;

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Bragg, S. M. (2012). Internal Audit Function. Controllership: The Work of the Managerial
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Carcello, J. V., Eulerich, M., Masli, A., & Wood, D. A. (2018). The value to management of
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Chan, A. M. Y., Liu, G., & Sun, J. (2013). Independent audit committee members’ board tenure
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Erkens, D. H., & Bonner, S. E. (2012). The role of firm status in appointments of accounting
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Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Taylor & Francis.
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Marcu, N. (2018). Principles and Ethical Values in Public External Audit Activity. In Current
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Mayne, J. (2017). Evaluation for accountability: myth or reality?. In Making Accountability
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