Finance - Assurance and Audit Essay Example | Topics and Well Written Essays - 1250 words

Finance - Assurance and Audit - Essay Example Internal audit function Fight (2002, p. 27) asserts that internal auditing serves the basic purpose of protecting the shareholders. Its role revolves around operational efficacy, financial reporting reliability, investigation and deterrence of fraud, asset safeguarding as well as ensuring compliance with the laws and regulations. Technically, internal auditors have a vital role in protection of the firm assets and their entire activities sum up to asset protection, which is also protection of the shareholders. According to Vinten (2004, p. 13), prevention of fraud revolves around monitoring of the financial procedures, including records and asset verification. Managers and other stakeholders commonly misappropriate these areas. A shareholder is an individual, an institution or a corporate with shares in a firm and has rights to the firm assets in case of liquidation. In essence, they own the company stock and have the right to protection from fraud and misappropriation. Internal audi tors have to protect the shareholders from financial loss resulting from fraudulent activities, obliteration of vital financial records, and concession of valuable, confidential information to unauthorized people, disruptive loss of business opportunities, unauthorized use of firm resources and confidence and customer relationship loss. Within a firm, it is easy to control most of the consequences by the appropriate application of internal control measures, including proper auditing procedures. Audit failure has brought questions about independent audit, yet it is necessary to note that auditing plays a significant role in the functioning of financial systems in any firm. It values the roles that financial reporters in firms play. However, the relevance of independent auditing is only visible when there is no fraud and absence of business failures after completion of auditing. This raises the questions regarding the need for independent auditors and one has to recognize the fact tha t a wide majority of audits stand the test of time when considering allegations of audit failures (Vinten, 2004, p. 45). There is normally an expectation that external auditors detect financial statement fraud and illegal acts by employees, which affect the financial reports integrity. The big concern is normally on misstatements in internally audited financial statements External auditors prepare reports regarding internal control over financial reporting. In the report, they outline the appropriateness of the management’s assessment of the internal controls and whether the company has maintained efficiency in control of internal financial reporting. Internal auditing carries out the initial auditing and prepares the financial reporting statements. In general, external auditors assess the effectiveness of the internal control over financial reporting, the design and operation of internal control over financial reporting basing on criteria of control, and finally, it ensures fairness in presentation of financial statements which conform with the generally acceptable accounting principles. Auditors have to keep improving their performance in protecting the shareholders, through the provision of accurate and adequate financial statements as well use of new technology in the audit process. This is essential for proper implementation of qualitative audits contributing to reliability of timely and useful financial information. They should be prepared to