Research Articles Base: Auditing Essays

Diffrent Kinds Of Auditing

Different Kinds of Auditing   Conventionally, auditing primarily associated with getting valid information about the financial systems as well as the financial records of a firm or business.  But, nowadays, it already involves other non-financial areas in non profit organizations and government agencies such as safety, security, information systems performance and environment concerns. Similarly,   it is a process of evaluating a person, organization, system, company, project or product.  In the same way it applies also to project, quality and energy conservation management.  As a result, there are now audit professionals who specialized in security audits, information systems audits, and environmental audits. This process is performed by accounting professionals in order to assure the validity and reliability of information; as well as to provide an assessment on the internal control of the organization.  The goal of auditing is to express an opinion of the person / organization / system in question, under evaluation based on work done on a test basis.  Additionally, it seeks also to provide reasonable assurance that the finding and statements are 100 percent free from any error.  And, in the case of financial auditing, there must be a set of financial statements    to be showed up which are valid and completely free from misstatements.  This will be based on both quantitative and qualitative research.  (http://en.wikipedia.org/wiki/Audit) On the other hand, in cost accounting, auditing is a process for verifying the cost of manufacturing or producing of any article, in measuring the use of material, labor or other items of cost.  In this connection, cost auditing, is a systematic and accurate verification of the cost accounts and records, and checking for adherence to the cost accounting objectives. An audit must adhere to accepted standards established by governing bodies. These standards assure third parties or external users that they can rely upon the auditor’s opinion on the fairness of financial statements, or other subjects on which the auditor expresses an opinion. Furthermore, auditors of financial auditing are divided into two types.  First is the external  or statutory auditing , this is an independent public accounting firm  that  deals with auditing and expressing a valid opinion on the company’s financial statements.  In addition, external auditors are   independent auditors who are being paid by various companies for auditing job.  The second is the internal auditing; the   internal auditors are employed by the company to do the internal auditing on the financial transactions and statements of the organization. The internal auditors are performing different audit procedures related to the policy over the effectiveness of the firm’s internal control over the financial reporting.   Whatever the results of the financial auditing, it may be forwarded to the shareholders, banks and whoever that is authorized to see the evaluation of the financial standing of the company.  Also, the main objective of the financial audit is to make sure that no one in the company is practicing any fraudulent act.  Subsequently, quality auditing is performed to be able to verify the conformity to standards by reviewing the objective evidence.  The quality audits can verify the effectiveness the quality of the management system of problem areas.  For the benefit of any organization, quality auditing must also report the areas of good practice as well as it enables to provide evidence of conformance.  By doing this, other departments of the company can share various information and modify their working attitudes and practices later on. (http://www.wisegeek.com/what-is-financial-auditing.htm) On the other side, there is another kind of auditing and that is the Scientology auditing.  It is a unique form of personal counseling to an individual which helps him    to   analyze his   own existence and improves his or her ability to confront what he is and where he is. There are vast differences between the technology of auditing and other forms of counseling. The person being audited is completely aware of everything that happens. Auditing is an accurate as well as thoroughly codified activity along with the exact procedures.   A person trained and qualified in applying auditing to individuals for their betterment is called an auditor. He is the one who listens.    He is a minister or minister-in-training of the Church of Scientology. He is a person who receives auditing and called a preclear, meaning a person who is not being clear about the status of her life.     However, New Era Diabetic auditing is also a peculiar process to evaluate the mental status of a person. This kind of auditing is freeing a person   from anxieties, fears,   unpleasant emotions and pains; as well as it provides the person a new level of self-determination to become better individual. (http://scientologyexposed.50megs.com/auditing.html) References: http://en.wikipedia.org/wiki/Audit http://www.wisegeek.com/what-is-financial-auditing.htm http://scientologyexposed.50megs.com/auditing.html   Credit:ivythesis.typepad.com

Diffrent Kinds Of Auditing

Different Kinds of Auditing Conventionally, auditing primarily associated with getting valid information about the financial systems...

Post Completion Audit

Introduction Since little is written in textbooks and journals about when and why post completion audits (PCA) should be performed, the following presentation includes professional citations as well as analysis to discuss the purpose and nature of PCA.  The paper shows how PCA can give added value to an organization, on what projects it would be most effective and the personnel demand when it is implemented.    The Purpose of a Post Completion Audit Post completion audits (PCA) are used as a guide for future decision-making in the realm of capital budgeting.  In Pinches schema, PCA is conducted as a way to identify mistakes in past investment decisions and uses the information to create a comprehensive resources allocation framework.  Specifically, PCA aims to identify operating difficulties in order to impose intervention, assess manager’s expertise to establish reward systems and lower managerial autonomy to the local level (1992).       PCA is the process of monitoring and evaluating a capital investment project through a comparison of the actual cash flows and other benefits with those that are forecasted or planed at the time of authorization for star-up (2007).   PCA is also referred as post completion review.  In this framework, PCA is a process of assessing ex post efficiency and effectiveness of capital budgeting as well as its implementation.  It compares planned and actual actions, cost and resource allocation and results against benefits analysis.  In addition, it reviews the assumptions made earlier about markets, technology, human resources, financing schemes and other external variables.  As a result, PCA intends organizations to learn and improve through adoption of processes that is rationalized by continuous analysis of their implications (2007).                  There are three specific purpose of PCA; namely, to support continuous improvement in the capital investment and implementation process in forward-looking stance, allowing the organization to determine and execute corrective actions as intervention strategies that suggest opportunity to evaluate financial factors at the date of review but also future cash flows and allow the review of current processes and create more efficient ones to improve future decision alternatives leading to better conformance of results (2007)               PCA helps the firm to be a learning organization.  It also polishes the rough edges that the organization uses when it is forecasting or creating forecasting parameters.  A learning organization is one that is skilled in crating, acquiring and transferring knowledge in which it uses these to change its behavior towards better results.  This definition makes PCA an important component of learning approach because it sets conditions for the organization to develop an effective learning capability especially on projects (1998).       Circumstances a Post Completion Audit should be undertaken   PCA is carried under circumstances of a project’s life; namely, the regular monitoring of a project during its planning stage, the regular monitoring of a project during its early phases of operation, the examination of the performance of managerial employees who are responsible and accountable with the operations and the extensive examination of the initial evaluation of the project against its actual results ( 1992 ).       In the case forwarded by Baker Corporation, PCA should be implemented in cases where the project has new and ambiguous technology in it.  The organization was left unaware about the effectiveness of the IT department’s program that is why the PCA is conducted to detect the actual competencies of the new technology.  In the implementation, PCA was called post-implementation audit or PIA where it is defined as a top-to-bottom evaluation of hard and soft benefits derived from a strategic information system, the security of the system and the project management process for deploying the technology.  At the end of PIA, it is found that the firm is able to save at least 0,000 yearly and identified that the returns on the new technology is pulled down by unexpected need for additional operators which served as additional cost pressure (2007).   The experience of Baker showed that PCA is a tool that not only determine the strengths of an uncertain technological strategy but also it transforms the organization of pro-active thinking because employees are able to create solutions to problems as they emerge.  In effect, employees are more confident with the new technology because they know its potential if only they cooperate as well as actual benefits.  In addition, PCA is also applied during continuous improvement strategies because an organization will not know how much they improve if they do not have a benchmark ( 2007).  In a study, PCA is applied only if the project exceeded a specified monetary amount of the budget.  However, the author argued that this approach or also referred as negative budget analysis dilemma made the respondent’s capital budgeting system inefficient because expensive investment’s problems are let undetected (2000).      Since PCA has the capacity to monitor operations, projects that have costs that are highly sensitive to certain business forces should be applied with it.  In this way, the cause of deviations to intended results will be determined and will serve as a platform for appropriate action plan.  However, PCA does not have the ability to discipline accountable persons who failed to produce planned operation/ strategy outcome.  Due to this, PCA is the suitable tool in monitoring big projects that employees may hesitate to handle due to certain bonds or disciplinary clauses if they fail to succeed (2007).    PCA should be implemented based on three criteria; namely, significant projects, nature of objectives of the project and nature of the project.  The first obliges the firm to apply PCA in cases where the project affects its strategic direction, financial scope is comparable to its size, strategic duration, limited risk or extraordinary returns and the requirements to use new forecasting or planning techniques does not adversely affect some societal ethical issues.  The second refers to the projects simplicity or complexity because PCA is more useful when projects are categorized as the latter.  The third component suggests that non-recurring projects should not be applied by PCA because learning would be useless (2007).        Nature and Size of a Post Completion Audit Team Most PCA are applied within a formal and complex system especially for large organizations.  Due to this, the cost of applying PCA can compensate the risk attached to adopting new process or technologies.  However, small organizations, small projects and relatively less risky strategies would not be able to compensate the costs and human resources burden associated with PCA (2007).   According to , VP of Greif Manufacturing, when the project tends to benefit the entire firm, departmental projects should hold the entire firm also accountable if it fails.  This stance will put every employee and department accountable to the project’s success even though they are indirectly participating in the project.  It usually take ten (10) days when an organization undergoes PCA but other firms like Sun Financial aspires to complete PCA within two weeks.  In determining the people who will be involved in PCA, the quality of their feedback is the core criteria for most companies.  For example, Honeywell Aviation Services and its projects use its employees who have training in Six Sigma to evaluate IT department projects and assure that the system has streamlined workflows ( 2007).   Usually, the most common groups or workers involved in PCA are members of project implementation team from IT, members of project implementation team from both IT and the business and/ or representatives from a company’s internal audit department.  In this view, Sun Life Financial approach to PCA implementation is one of the industries best according to PricewaterhouseCoopers.  In the latter opinion, PCA should consist of a businessperson, IT personnel and someone who is not part of the project team like the internal auditor.  In this way, a group of people with different functions participates in the audit, which creates holistic approach to benefits, deliverables and requirements for the project ( 2007).   Managers and top-level executives carry PCA team.  Furthermore, committee should be formed consisting of persons who are experienced in the firm’s financial control system and familiar with technical, financial and marketing aspects of the project in question as well as its outcome.  Since PCA is more than financial evaluation, the team should be headed by a managerial accountant to prevent overly focus on accounting processes rather business thinking.  Lastly, the size of the committee to be formed is dependent on the size of the organization or it can also be suited to the size of the project in terms of the assets used, personnel involved, time frame for completion and business partners engaged (2007).       Conclusion It is found that PCA is a tool that helps the organization to prevent mistakes once they have confronted it through the lifespan of a project.  However, to balance its costs and benefits, the organization should be able to identify the key financial/ business features of a project and compared it to the demands to the organization when PCA is applied.  In this way, the benefits of PCA will be more appreciated and not simply lead them to exaggeration and false hopes.  The nature and size of PCA can show signs of how much the company will benefit from PCA for a certain project.      Credit:ivythesis.typepad.com

Post Completion Audit

Introduction Since little is written in textbooks and journals about when and why post completion audits (PCA) should be performed, the ...

AUDITING

Introduction Measuring social performance is difficult, however, because of its link to the issue of organizational effectiveness an organization’s social performance is an indistinguishable component of its effectiveness. Social performance is adequately defined as the extent to which an organization meets the needs, expectations, and demands of certain external constituencies beyond those directly linked to the company’s products/markets. It is also referred to as participant observation, ecological model, or external effectiveness.  Its measurement, involving the perceptions of all external constituencies in an overall index, is at best impractical (, 1998). One approach, however, is to develop reputational indices, listing companies exhibiting good or bad social performance. The relationship between social disclosure, social performance, and economic performance is best expressed by the view that social responsiveness requires from management the same superior skills required to make a firm profitable. Socially responsive firms in terms of social disclosure and social performance should outperform non responsive or less responsive ones in terms of profitability as measured by accounting variables such as a rate of return on investment, and market variables such as a differential stock price return (, 1998).   The last twenty years have seen profound changes to the economy. Many commentators have referred to the arrival of the environmental issue in the mainstream of business life. More recently the arrival of social issues into the business debate has gained attention and is being seen by some as the next wave. These two trends are often put forward as being what sustainability is about the integration of social and environmental issues into our decision making as a society. One of the key outcomes of this evolution is a changing role for business in society. Another is a shift in how change occurs in the economy when social values change. One of the reasons this is important is because when people see sustainability as only the incorporation of environmental and social questions into decision making. If people will examine it in the context of some broader shifts in society, then responding to it becomes not only easier, but it also becomes an opportunity with a series of benefits.  The environmental issue has moved from the fringe to the mainstream. It has shifted from being an issue which needed to be addressed, and into a basic part of society’s values and beliefs. Environmental and social movements tend to break down in similar ways. Despite public positions advocating radical change, many environmental and social change organizations are internally very conservative (, 2000). Business has a very important responsibility to the society. It has the responsibility to divulge any information that is needed by the society. Such information can be in the form of internal and external auditing. The accelerated new expectations of society have put new pressures on the corporate management, their boards of directors, and the independent external auditors for socially oriented action.  The paper will access whether the internal auditor should be providing services to the corporate management or the board of directors or both. Achieving sustainable competitive advantage A customer may defect to a competitor even if satisfied with the current provider because the competitor may be offering a value bundle with the perceived potential for a higher degree of satisfaction for that customer. Therefore, firms have to strive to achieve higher levels of satisfaction than their competition by providing superior customer value. This is the essence of achieving a sustainable competitive advantage. Technology alone will not provide a competitive advantage (, 2003). The combination of superior technology and superior employees with a service orientation will contribute to achieving sustainable competitive advantage. It also quickly becomes evident that they need suppliers as well as distributors and agents who have a similar and compatible culture. Thus, there are two strong themes in any discussion of creating superior customer value at a sustainable profit and this includes a customer-focus imperative and a service orientation (, 2003).    If all aspects of the firm and how the firm creates and delivers value to the customer are focused on the customer, the firm can provide a superior level of customer value. Such a firm is well positioned for a sustainable competitive advantage. A customer focus necessitates a deep understanding of customers and their activities, interests, and opinions around the particular value or solution that the firm is providing. It should be an attitude that is pervasive and that permeates throughout the firm such that it becomes ingrained as a culture. Once this focus becomes a given, then the firm will find itself in the mode of serving the customer while ensuring a reasonable profit (, 2003). Every firm in any industry provides some customer value. The firm that provides superior customer value is the one that has a sustainable competitive advantage. Firms compete with each other on differentiable aspects of the total solution. If organizations can conceptualize that every product has parts that are commodities and parts that differentiate it from others, superior value is in the augmented product, not in the conceptual core (, 2003).   As firms focus on customer needs and become service oriented to deliver satisfaction, there are favorable ripple effects throughout the firm. Consistent delivery of customer satisfaction persuades customers to be loyal because perceived risk in buying a product from that firm is substantially reduced. By way of their continued patronage, they become more valuable to the firm. When customers are loyal to the provider by choice, it is also in their best interest to support the provider because the prosperity and longevity of the provider is beneficial to the customer (, 2003). When employee loyalty is high, employees are likely to be more productive and to be providing quality products and does for the customer and everything associated with it (, 2003).  To achieve a sustainable competitive advantage companies have to make sure that they have a good relationship with its society. The company can have a good relationship with the society through providing them with necessary information. Through reporting audit information to management and directors the company can prepare to give the best information to the society. Report to management Comprehensive plans have three essential ingredients: evidence regarding internal and external business conditions upon which to predicate planning decisions; planning decisions themselves, including predefined descriptions of success and management’s approach to achieving success, along with a rationale for selecting the approach to be taken rather than alternatives; and, finally, a deliberate, orderly approach to implementing strategy through clearly described actions with assigned management responsibilities, schedules, costs, and benefits as well as a procedure to monitor progress toward objectives and initiate re planning efforts when they are needed ( 2004). Roles of top management team members in comprehensive planning will vary in response to the firm’s size and structure, the CEO’s management style, the industry’s culture, and so on. Thus, it is difficult to provide categorical guidelines for planning roles of senior executives, other than the chief executive and the planning executive (, 2004).   However, it will be demonstrated in a subsequent chapter that participation of management team members in planning is likely to facilitate strategy implementation; that their consensus on strategy is likely to enhance financial performance; and that some discord on goals and objectives probably facilitates a broader examination of alternatives and, therefore, enhances performance as well (, 2004). Top corporate management provides operating management with the corporation’s goals, preliminary strategic objectives, capital allocations, and expected rates of return. Operating management submits preliminary forecasts of market conditions, financial performance potential, and preliminary statements of its own objectives. Differences between corporate and operating expectations then may be resolved; where necessary, objectives can be amended before more detailed planning begins (, 2004).   Firms with greater perceived organizational complexity tended to have more sophisticated planning systems, implying that complex operating systems may need the integrating benefits that comprehensive planning can provide to process information and/or revise strategy effectively Diversified firms with fast growth rates were characterized by a decentralized but well-coordinated management structure; a participative planning style in which top corporate management remained closely involved; and the use of forecasts in control procedures(, 2004). Diversified firms with high profit margins were characterized by less involvement of top management in the planning process. However, those with the highest profit margins also tended to have more formalized organizations and more effective coordination than others. Corporate management should be able to concentrate resources where prospects for growth and earnings are currently highest, and shift allocations between portfolio businesses as their market opportunities shift (, 2004). Internal Auditors should report to the management about the different problems they see within the company so that the management can immediately act on it. Report to the directors The board of directors plays two major roles in the corporate governance structure of the firm. The first role, which is determined by law, is the control function. Corporate law requires that the board review and approve management actions to make sure that they are consistent with the interests of shareholders. A second function of board is to provide the firm with access to the resources and expertise it needs to compete successfully ( & , 1998). Directors who are members of several different company boards provide the firms’ executives with information concerning alternative strategies and organizational practices that are being pursued or considered by related firms and industries. In today’s new competitive environment, firms have been developing new approaches to organizing. One major trend is that all firms are trimming corporate staff and middle management positions and pushing the responsibility for decision making to lower levels of the organization ( & , 1998).   Top management is increasingly granting operating units greater autonomy, with unit managers given discretion over all the resources their unit requires to do its work. This increases the speed with which the firm can react to competitive change. Organizations no longer have the time for lengthy communication and debate. When a firm delegates decision making to lower levels of the organization, it eliminates supervisory positions. That means eliminating a level of control. As a replacement to this control system, corporations have come to rely more heavily on new compensation systems to align the interests of management with shareholders. Everyone is required to justify their decisions on the basis of the anticipated impact they will have on shareholder value ( & , 1998).   To compete successfully into the twenty-first century, firms must develop the capacity to change quickly and effectively. This means that the corporate governance process will have to become more responsive to shareholders’ interests. The solution lies, most importantly, with the firm’s executive team and a rejuvenated board of directors. It is not enough that the directors be employed outside the firm they also must be independent of the chief executive officer. Additionally, directors must have the knowledge and experience to be able to challenge the firm’s management. In addition, directors must have access to whatever information they need to make an objective evaluation of the firm’s executives. They cannot rely on the chief executive as the sole source for the information on which they base the executive’s performance evaluation. To get directors to think like the owners they are supposed to represent, reforms should include a contingent compensation system. Directors should receive a larger portion of their compensation based on stock options rather than a flat fee. This is similar to the approach that is advocated to get management to align its interests more closely with those of the shareholders ( & , 1998).Internal auditors should report to Directors so that they can determine what part of the company is causing the problems and they can give it proper solution. Relationship with auditors Audit is used to serve two purposes in both the public and private sectors. First, it can act as a tool of management. Secondly, audit can be used as a form of external review, conducted by an independent auditor in order to hold the organization and its management to account. This is external audit. Although the two types of audit serve different purposes and different audiences, they are linked. The purpose of internal audit is to improve value for money, avoid and detect fraud, and check and improve the financial systems. These are not dissimilar from the functions of external auditors, and clearly there is a degree of overlap. This allows the external auditor to rely on the work of the internal auditor if he is satisfied that the internal audit findings are accurate ( & , 1999). Therefore, the closer the fit between the internal and external processes the more efficient and effective the latter is likely to be. The independence of an external auditor is vital to enable the auditor to perform his functions properly. In the private sector, the internal auditor’s basic role is to certify annually, in a report to members, whether or not the accounts of an organization give a true and fair view of the state of that organization ( & , 1999).   The process of audit provides information that can be relevant to all dimensions of accountability. As regards managerial accountability, there is clearly an overlap between the work of the auditor in evaluating systems for achieving value for money (vfm) and the work of management, which is responsible for delivering vfm ( & , 1999). Audit arrangements emphasize the production of comfort; this reflects an institutional need for auditing not to be too successful in finding problems and in producing discomfort by reporting these problems. This tension between comforting and criticizing has deeper implications for the role of auditing as a basis for public dialogue (, 1997). Internal and external auditors have different values to an organization. Both the internal and external auditors have different capabilities and responsibilities. The internal and external auditors are expected to perform well. They should work together so that important auditing information can be related to the organization. The auditors have to have a good working relationship with the other auditors for the achievement of their goals.   Conclusion Business has a very important responsibility to the society. It has the responsibility to divulge any information that is needed by the society. Such information can be in the form of internal and external auditing. The accelerated new expectations of society have put new pressures on the corporate management, their boards of directors, and the independent external auditors for socially oriented action. Auditors should report to the management about the different problems they see within the company so that the management can immediately act on it. Auditors should report to Directors so that they can determine what part of the company is causing the problems and they can give it proper solution.   Bibliography Credit:ivythesis.typepad.com

AUDITING

Introduction Measuring social performance is difficult, however, because of its link to the issue of organizational effectiveness an org...

Advanced Auditing Practice

Overview Perhaps, every organization wants to initiate an analytical auditing system and auditing strategy that could maintain the organization’s capability, strength and competitiveness. The dramatic changes and advances in communications and information technology facilitated the way towards a sustained progress in the international business and finance environment. The low cost and the efficiency as well as the attractiveness of conducting and entering any business venture – local or international in nature were made available by these technological advances which characterize the global marketplace. Today, greater challenges are faced by financial managers and accountants as opportunities for growth as well as possibilities of risks increase in the current and more attractive business world.             This paper aims to discuss the significant role of an analytical auditing system in relation to the introduction of advanced auditing practices. It sought to find relevant applications of information gathered through management accounting. In the end, it suggests some ways to effectively implement the gathered information for the advantage and benefit of the company paying particular attention to an analytical auditing system. Introduction Analytical auditing is the inspection and verification of the accuracy of financial records and statements. Private businesses and all levels of government conduct internal audits of accounting records and procedures. Internal audits are conducted by a company’s own personnel to uncover bookkeeping errors and also to check the honesty of employees. In large companies, internal auditing is an ongoing procedure. A company that trades stock on a registered stock exchange or is preparing to issue new shares of stock must submit to an external audit. These companies are known as publicly traded companies (2000. An external audit is used to give the public a true statement of a company’s financial position. It is made at least once a year by public accountants who are not regular employees of the company. The auditors make sure that the company has followed proper accounting procedures in its financial records and statements. They compare the current financial statements with those of the previous year to determine whether the statements are calculated consistently. If they are not, they present a distorted picture of the company’s financial position. The auditors also inspect real estate, buildings, and other assets to see if their value is overstated. Debts and other liabilities are checked to see if they have been understated (1999). Analytical auditing practice has a much longer history than many of the other developments that can be considered and the large firms of accountants, in which many financial auditors work have become influential advisory institutions throughout the world.  Thus Analytical auditing has provided the model which has influenced the design of auditing practice in many other fields. Although environmental, medical, or value for money audits are conceived as distinct from financial auditing, the latter continues to exert its normative influence as a centre of gravity for debate and discussion. And it is in the context of Analytical auditing that the dependency of acts of verification on judgment and negotiation is most apparent. The power of the analytical auditing model lies in its benchmarking potential for other audit practices. In part this potential is realized indirectly through the work of accountant advisors, for whom the analytical auditing model is a fundamental component of their expertise and whose advice in areas of control is shaped by it. But the influence can also be direct as entities such as hospital trusts, privatized industries, charities, and many other organizations become subject to an intensification of financial control and reporting requirements. This is an expanding domain, not just of neutral checking but also of judgment and of an evaluation of the fundamental purposes of organizations. Paradoxically, given the influential role of the analytical auditing model suggested above, its status as a practice is unclear. What do audits produce and how are they effective? (2002). Analytical auditing is subject to expectations and demands which are, justifiably or otherwise, often disappointed. Nevertheless, the official procedural knowledge base of auditing has evolved in response to scandals and corporate failures in such a way that the essential puzzle of what audits produces their effectiveness remains hidden from view as an article of faith. Finally despite, and probably because of, this puzzle it is argued that financial auditing maintains itself as an institutionally credible system of knowledge. Notwithstanding crisis and scandal it satisfies the aspirations and demands of a variety of regulatory programs. Particular audits may fail but the system as such cannot. The possibility of effective auditing is necessarily presupposed by regulatory intentions. Traditionally, analytical auditing has applied itself to the domain of finance, but organizations are increasingly finding value from internal audits that monitor other aspects of their activity. Environmental and social audits, for example, have been championed by firms in response to the ethical concerns of both shareholders and the public in relation to the company’s impact upon the locality. Analytical auditing is growing in importance too, partly in response to recent major scandals such as the collapse of banks, and also in order to monitor the increasingly complex demands being made upon accountants ( 2002). However, auditing remains something of a mystery to those outside of the profession, and has become more specialized as accounting has become more sophisticated. For example, while best practice has evolved certain tools for analytical review or establishing audit trails, an element of subjective judgment remains as auditors decide what evidence to include. Further, rules of thumb can never be ruled out. Audit risk has developed as an issue too, as the models for reducing the probability of mistakes being made on sampling, for example, become more subtle. In countries such as Canada these have changed dramatically. Here, a Bayesian approach was introduced in 1980. Auditors recognize the limitations of their science. They are not held responsible for detecting fraud, for example. Analytical auditing provides a degree of assurance, but not insurance, as to the financial position of the firm (2002). The Cyclical Testing Method Readers of financial statements of foreign companies audited by major international accounting firms through the cyclical testing method assume a uniformly high quality of information. International differences in audit objectives, standards and practice, however, of the cyclical testing method result in varying levels of audit assurance. Cyclical testing method users and accountants whose clients demand expertise in all phases of financial accounting and reporting matters whether domestic and international need to be aware of these differences. The development of cyclical testing method standards and practice in different countries is influenced by numerous factors including the nature of financing, the size and complexity of businesses and capital markets, tax laws and the legal environment. In the United States and the United Kingdom, many owners provide much of the financing for public companies, and capital markets are large and sophisticated ( 1996). As a result, shareholders’ needs significantly influence financial statements and independent audits, and private-sector bodies have a strong impact on both accounting and audit standard setting. In Germany, a small number of large banks and pension funds traditionally supply most business capital, and ownership and voting rights generally are concentrated. One result is less demand for independent audits and for a sophisticated, investor-oriented financial reporting system. Another is that the German accounting profession has less influence in establishing accounting standards which are set primarily by commercial laws. However, as in the United States and the United Kingdom, the accounting profession has played an important role in developing audit standards. International differences in business, legal and cultural environments also have led to varying audit objectives. Consistent with a strong investor orientation, the audit objective in the United States is to express an opinion on whether the financial statements present fairly, in all material respects, financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The strong presumption is that to present fairly, financial statements must conform to generally accepted accounting principles (GAAP). Departures are permitted only in rare instances (1996). Annual certification approach The annual certification approach is a description and discussion of the auditor’s responsibility to consider fraud in the audit of financial statements. It is divided into different titles that includes an introduction; the description of the characteristics of fraud; description of the responsibilities of those charged with governance and of management; the inherent limitations of an audit in the context of fraud; the responsibilities of the auditor for detecting material misstatement due to fraud; professional skepticism; discussion among the engagement team; risk assessment procedures; identification and assessment of the risks of material misstatement due to fraud; responses to the risks of material misstatement due to fraud; evaluation of audit evidence; management representations; communications with management and those charged with governance; communications to regulatory and enforcement authorities; auditor unable to continue the engagement; documentation; effective date (1994). This annual certification approach distinguishes fraud from error and describes the two types of fraud that are relevant to the auditor, that is, misstatements resulting from misappropriation of assets and misstatements resulting from fraudulent financial reporting; describes the respective responsibilities of those charged with governance and the management of the entity for the prevention and detection of fraud, describes the inherent limitations of an audit in the context of fraud, and sets out the responsibilities of the auditor for detecting material misstatements due to fraud. The annual certification approach also requires the auditor to maintain an attitude of professional skepticism recognizing the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor’s past experience with the entity about the honesty and integrity of management and those charged with governance. Moreover the annual certification approach requires members of the engagement team to discuss the susceptibility of the entity’s financial statements to material misstatement due to fraud and requires the engagement partner to consider which matters are to be communicated to members of the engagement team not involved in the discussion. The annual certification approach requires auditor to do certain things such as performing procedures to obtain information that is used to identify the risks of material misstatement due to fraud; identifying and assessing the risks of material misstatement due to fraud at the financial statement level and the assertion level and for those assessed risks that could result in a material misstatement due to fraud, evaluate the design of the entity’s related controls, including relevant control activities, and to determine whether they have been implemented; determining overall responses to address the risks of material misstatement due to fraud at the financial statement level and consider the assignment and supervision of personnel, consider the accounting policies used by the entity and incorporate an element of unpredictability in the selection of the nature, timing and extent of the audit procedures to be performed; designing and performing audit procedures to respond to the risk of management override of controls; determining responses to address the assessed risks of material misstatement due to fraud; considering whether an identified misstatement may be indicative of fraud; obtaining written representations from management relating to fraud; and communicating with management and those charged with governance. The annual certification approach provides guidance on communications with regulatory and enforcement authorities. The standard provides guidance if, as a result of a misstatement resulting from fraud or suspected fraud, the auditor encounters exceptional circumstances that bring into question the auditor’s ability to continue performing the audit. Lastly the standard establishes documentation requirements (2000). Modifications of Analytical Auditing Approach The analytical auditing approach mentioned that it is management’s responsibility to ensure that the entity’s operations are conducted in accordance with laws and regulations. The responsibility for the prevention and detection of noncompliance rests with management ( 2005). There are policies and procedures that can assist management in discharging its responsibilities for the prevention and detection of noncompliance this includes monitoring legal requirements and ensuring that operating procedures are designed to meet these requirements.             In introducing the analytical auditing approach, proper research and studies should be made in order to define and maneuver the direction of the whole plan. Setting up the ideas and presenting them to the figures of authority for a rich exchange of views will be helpful in generating plans that will be best for the organization. The company should be conscious and cautious in terms of the savings and the transparency of the expenditures. The people involved should also have the guts and the character to make the long-term plans a success by initiating efforts that will make such conjured ideas possible and tangible in the future. Specifying the date and time frame of executing the introduction of the analytical auditing approach that will make its attainment possible will push and business to start right on and take the challenge. As much as possible, hesitations should not be acknowledge unless there are enough reasons to postpone the initial execution of the plans that will be more risky than the imagined drawbacks of the analytical auditing approach. They should be sensitive in making delays and lagging off from the defined plan and tactics as well as in the changes and differences of the actual application and that of the plan.             It would also be advisable to get help and consult from a professional finance consultant, certified accountants, and other corporate professional with sufficient know-how in management accounting especially with respect to pricing decision-making (2005). The rationale behind this is that they can provide information and views that were not pointed out and brought up during the planning period. They can also plan and foresee circumstances that serve as a financial back up for the emergencies and difficulties that were not foreseen while coming up with the plans. In managing the introduction of analytical auditing approach in the company with respect to the principle of management accounting, it is of primary importance that the resources and the welfare of the company are identified. From these resources, the people in the general management especially the manager to be selective in choosing the price and other financial resources that the company will invest in. The nature of the analytical auditing approach should be studied so that the opportunities that it offers can be fully exhausted by the company ( 2004).             Strategic planning could be only successful if the circumstances of the introduction of analytical auditing approach that will be made are well examined and researched (2005). This will prepare the whole business in the problems and issues that the company may confront during the introduction of the analytical auditing approach. However, this does not assure that there will be no problems that will exist and confront the venture. The analytical auditing approach cannot be put in isolation from the whole organization. The price, budget and all the investment, and profit growth possibilities that the company can venture in all depend on its overall capacity which will make the operations of the business possible. Coordination between and among the department within the organization as well as among all the staff and employees should be fostered in the workplace for the immediate success of the business endeavor.     Credit:ivythesis.typepad.com

Advanced Auditing Practice

Overview Perhaps, every organization wants to initiate an analytical auditing system and auditing strategy that could maintain the organ...

Advanced Auditing Practice

Overview Perhaps, every organization wants to initiate an analytical auditing system and auditing strategy that could maintain the organization’s capability, strength and competitiveness. The dramatic changes and advances in communications and information technology facilitated the way towards a sustained progress in the international business and finance environment. The low cost and the efficiency as well as the attractiveness of conducting and entering any business venture – local or international in nature were made available by these technological advances which characterize the global marketplace. Today, greater challenges are faced by financial managers and accountants as opportunities for growth as well as possibilities of risks increase in the current and more attractive business world.             This paper aims to discuss the significant role of an analytical auditing system in relation to the introduction of advanced auditing practices. It sought to find relevant applications of information gathered through management accounting. In the end, it suggests some ways to effectively implement the gathered information for the advantage and benefit of the company paying particular attention to an analytical auditing system. Introduction Analytical auditing is the inspection and verification of the accuracy of financial records and statements. Private businesses and all levels of government conduct internal audits of accounting records and procedures. Internal audits are conducted by a company’s own personnel to uncover bookkeeping errors and also to check the honesty of employees. In large companies, internal auditing is an ongoing procedure. A company that trades stock on a registered stock exchange or is preparing to issue new shares of stock must submit to an external audit. These companies are known as publicly traded companies (, 2000.)  An external audit is used to give the public a true statement of a company’s financial position. It is made at least once a year by public accountants who are not regular employees of the company. The auditors make sure that the company has followed proper accounting procedures in its financial records and statements. They compare the current financial statements with those of the previous year to determine whether the statements are calculated consistently. If they are not, they present a distorted picture of the company’s financial position. The auditors also inspect real estate, buildings, and other assets to see if their value is overstated. Debts and other liabilities are checked to see if they have been understated ( &  1999). Analytical auditing practice has a much longer history than many of the other developments that can be considered and the large firms of accountants, in which many financial auditors work have become influential advisory institutions throughout the world.  Thus Analytical auditing has provided the model which has influenced the design of auditing practice in many other fields. Although environmental, medical, or value for money audits are conceived as distinct from financial auditing, the latter continues to exert its normative influence as a centre of gravity for debate and discussion. And it is in the context of Analytical auditing that the dependency of acts of verification on judgment and negotiation is most apparent. The power of the analytical auditing model lies in its benchmarking potential for other audit practices. In part this potential is realized indirectly through the work of accountant advisors, for whom the analytical auditing model is a fundamental component of their expertise and whose advice in areas of control is shaped by it. But the influence can also be direct as entities such as hospital trusts, privatized industries, charities, and many other organizations become subject to an intensification of financial control and reporting requirements. This is an expanding domain, not just of neutral checking but also of judgment and of an evaluation of the fundamental purposes of organizations. Paradoxically, given the influential role of the analytical auditing model suggested above, its status as a practice is unclear. What do audits produce and how are they effective? ( 2002). Analytical auditing is subject to expectations and demands which are, justifiably or otherwise, often disappointed. Nevertheless, the official procedural knowledge base of auditing has evolved in response to scandals and corporate failures in such a way that the essential puzzle of what audits produces their effectiveness remains hidden from view as an article of faith. Finally despite, and probably because of, this puzzle it is argued that financial auditing maintains itself as an institutionally credible system of knowledge. Notwithstanding crisis and scandal it satisfies the aspirations and demands of a variety of regulatory programs. Particular audits may fail but the system as such cannot. The possibility of effective auditing is necessarily presupposed by regulatory intentions. Traditionally, analytical auditing has applied itself to the domain of finance, but organizations are increasingly finding value from internal audits that monitor other aspects of their activity. Environmental and social audits, for example, have been championed by firms in response to the ethical concerns of both shareholders and the public in relation to the company’s impact upon the locality. Analytical auditing is growing in importance too, partly in response to recent major scandals such as the collapse of banks, and also in order to monitor the increasingly complex demands being made upon accountants ( 2002). However, auditing remains something of a mystery to those outside of the profession, and has become more specialized as accounting has become more sophisticated. For example, while best practice has evolved certain tools for analytical review or establishing audit trails, an element of subjective judgment remains as auditors decide what evidence to include. Further, rules of thumb can never be ruled out. Audit risk has developed as an issue too, as the models for reducing the probability of mistakes being made on sampling, for example, become more subtle. In countries such as Canada these have changed dramatically. Here, a Bayesian approach was introduced in 1980. Auditors recognize the limitations of their science. They are not held responsible for detecting fraud, for example. Analytical auditing provides a degree of assurance, but not insurance, as to the financial position of the firm ( 2002). The Cyclical Testing Method Readers of financial statements of foreign companies audited by major international accounting firms through the cyclical testing method assume a uniformly high quality of information. International differences in audit objectives, standards and practice, however, of the cyclical testing method result in varying levels of audit assurance. Cyclical testing method users and accountants whose clients demand expertise in all phases of financial accounting and reporting matters whether domestic and international need to be aware of these differences. The development of cyclical testing method standards and practice in different countries is influenced by numerous factors including the nature of financing, the size and complexity of businesses and capital markets, tax laws and the legal environment. In the United States and the United Kingdom, many owners provide much of the financing for public companies, and capital markets are large and sophisticated ( &  1996). As a result, shareholders’ needs significantly influence financial statements and independent audits, and private-sector bodies have a strong impact on both accounting and audit standard setting. In Germany, a small number of large banks and pension funds traditionally supply most business capital, and ownership and voting rights generally are concentrated. One result is less demand for independent audits and for a sophisticated, investor-oriented financial reporting system. Another is that the German accounting profession has less influence in establishing accounting standards which are set primarily by commercial laws. However, as in the United States and the United Kingdom, the accounting profession has played an important role in developing audit standards. International differences in business, legal and cultural environments also have led to varying audit objectives. Consistent with a strong investor orientation, the audit objective in the United States is to express an opinion on whether the financial statements present fairly, in all material respects, financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The strong presumption is that to present fairly, financial statements must conform to generally accepted accounting principles (GAAP). Departures are permitted only in rare instances ( &  1996). Annual certification approach The annual certification approach is a description and discussion of the auditor’s responsibility to consider fraud in the audit of financial statements. It is divided into different titles that includes an introduction; the description of the characteristics of fraud; description of the responsibilities of those charged with governance and of management; the inherent limitations of an audit in the context of fraud; the responsibilities of the auditor for detecting material misstatement due to fraud; professional skepticism; discussion among the engagement team; risk assessment procedures; identification and assessment of the risks of material misstatement due to fraud; responses to the risks of material misstatement due to fraud; evaluation of audit evidence; management representations; communications with management and those charged with governance; communications to regulatory and enforcement authorities; auditor unable to continue the engagement; documentation; effective date (, 1994). This annual certification approach distinguishes fraud from error and describes the two types of fraud that are relevant to the auditor, that is, misstatements resulting from misappropriation of assets and misstatements resulting from fraudulent financial reporting; describes the respective responsibilities of those charged with governance and the management of the entity for the prevention and detection of fraud, describes the inherent limitations of an audit in the context of fraud, and sets out the responsibilities of the auditor for detecting material misstatements due to fraud. The annual certification approach also requires the auditor to maintain an attitude of professional skepticism recognizing the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor’s past experience with the entity about the honesty and integrity of management and those charged with governance. Moreover the annual certification approach requires members of the engagement team to discuss the susceptibility of the entity’s financial statements to material misstatement due to fraud and requires the engagement partner to consider which matters are to be communicated to members of the engagement team not involved in the discussion. The annual certification approach requires auditor to do certain things such as performing procedures to obtain information that is used to identify the risks of material misstatement due to fraud; identifying and assessing the risks of material misstatement due to fraud at the financial statement level and the assertion level and for those assessed risks that could result in a material misstatement due to fraud, evaluate the design of the entity’s related controls, including relevant control activities, and to determine whether they have been implemented; determining overall responses to address the risks of material misstatement due to fraud at the financial statement level and consider the assignment and supervision of personnel, consider the accounting policies used by the entity and incorporate an element of unpredictability in the selection of the nature, timing and extent of the audit procedures to be performed; designing and performing audit procedures to respond to the risk of management override of controls; determining responses to address the assessed risks of material misstatement due to fraud; considering whether an identified misstatement may be indicative of fraud; obtaining written representations from management relating to fraud; and communicating with management and those charged with governance. The annual certification approach provides guidance on communications with regulatory and enforcement authorities. The standard provides guidance if, as a result of a misstatement resulting from fraud or suspected fraud, the auditor encounters exceptional circumstances that bring into question the auditor’s ability to continue performing the audit. Lastly the standard establishes documentation requirements (, 2000). Modifications of Analytical Auditing Approach The analytical auditing approach mentioned that it is management’s responsibility to ensure that the entity’s operations are conducted in accordance with laws and regulations. The responsibility for the prevention and detection of noncompliance rests with management (, 2005). There are policies and procedures that can assist management in discharging its responsibilities for the prevention and detection of noncompliance this includes monitoring legal requirements and ensuring that operating procedures are designed to meet these requirements.             In introducing the analytical auditing approach, proper research and studies should be made in order to define and maneuver the direction of the whole plan. Setting up the ideas and presenting them to the figures of authority for a rich exchange of views will be helpful in generating plans that will be best for the organization. The company should be conscious and cautious in terms of the savings and the transparency of the expenditures. The people involved should also have the guts and the character to make the long-term plans a success by initiating efforts that will make such conjured ideas possible and tangible in the future. Specifying the date and time frame of executing the introduction of the analytical auditing approach that will make its attainment possible will push and business to start right on and take the challenge. As much as possible, hesitations should not be acknowledge unless there are enough reasons to postpone the initial execution of the plans that will be more risky than the imagined drawbacks of the analytical auditing approach. They should be sensitive in making delays and lagging off from the defined plan and tactics as well as in the changes and differences of the actual application and that of the plan.             It would also be advisable to get help and consult from a professional finance consultant, certified accountants, and other corporate professional with sufficient know-how in management accounting especially with respect to pricing decision-making (, 2005). The rationale behind this is that they can provide information and views that were not pointed out and brought up during the planning period. They can also plan and foresee circumstances that serve as a financial back up for the emergencies and difficulties that were not foreseen while coming up with the plans. In managing the introduction of analytical auditing approach in the company with respect to the principle of management accounting, it is of primary importance that the resources and the welfare of the company are identified. From these resources, the people in the general management especially the manager to be selective in choosing the price and other financial resources that the company will invest in. The nature of the analytical auditing approach should be studied so that the opportunities that it offers can be fully exhausted by the company (, 2004).             Strategic planning could be only successful if the circumstances of the introduction of analytical auditing approach that will be made are well examined and researched (, 2005). This will prepare the whole business in the problems and issues that the company may confront during the introduction of the analytical auditing approach. However, this does not assure that there will be no problems that will exist and confront the venture. The analytical auditing approach cannot be put in isolation from the whole organization. The price, budget and all the investment, and profit growth possibilities that the company can venture in all depend on its overall capacity which will make the operations of the business possible. Coordination between and among the department within the organization as well as among all the staff and employees should be fostered in the workplace for the immediate success of the business endeavor.     REFERENCES   Credit:ivythesis.typepad.com

Advanced Auditing Practice

Overview Perhaps, every organization wants to initiate an analytical auditing system and auditing strategy that could maintain the organ...

Audit Commission

Audit Commission   Introduction             Business organizations in both public and private sectors perform a variety of tasks and responsibilities that enable it to function in an effective manner. These tasks and responsibilities are distributed among teams, which are assigned to fulfill their duties in a specific organization. All designated tasks are equally important in a company, thus, making all employees and staff crucial to the operations of the organization. One of the crucial functions in both public and private organizations is the process of auditing.             It has been reported that an audit is an evaluation of an organization, system, process, project or product, which involves the independent and fair assessment of the financial statements of the organization (2007). Knowledgeable, independent, and objective individual or group of individuals, known as auditors or accountants, makes a report based on the results of the audit. In addition, this function is performed to determine the reliability and validity of financial information, and to present an evaluation of a specific company or an internal control of a particular business system, for these systems must comply with the generally accepted standards laid down by national governing bodies for regulation (2007). Because of such importance, this paper seeks to analyze and evaluate the external auditing and its role in the public and private sectors.   1) What are the advantages of having a national body to appoint and oversee the work of external auditors in the public sector?             External auditors are independent staffs that are assigned to evaluate financial statements or to perform other agreed upon evaluations, are employed for annual engagements and called upon from the external environment of the organization (2007). In addition, they are being relied on to present an unbiased and independent assessment on the financial statements and legal entities of an organization, such as the government or private sectors. Their role is to communicate their opinions if the financial statements of a company are free of material misstatements, including investigation of issues on regulation and taxation, which are based on the internal controls of the company ( 2007). In a public sector, the work of external auditors is equally important because they serve to alert or warn the organization regarding policies, issues and other inaccuracies in terms of their internal control or audit ( 2005). However, in overseeing the work of external auditors, a responsible national body must be assigned to do the tasks. Having a national body in the public sector involves a variety of advantages or benefits. These advantages, as pointed out by  (1993) include the following: <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Achieve mutual understanding in the planning process – This involves coming up with cost-effective process for the cost reduction of the organization.</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Advantage of the public sector in producing and supervising a report in an appropriate, fair, and timely manner</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Observing professional work ethics – This can exist between the national body and the external auditors to achieve mutual understanding and teamwork.</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Understanding their roles and working together to facilitate effective arrangements</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Practice effective communication – With the supervision of the national body, proper information regarding the organization will be effectively shared and dissipated to the external auditors for more reliable and credible data</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Reinforce and reinstate purpose and process of the audit</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Overseeing their work would allow the national body to recognize matters of concern, which they would like their external auditors to consider in the audit</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Through supervision of a national body, the external auditors can plan coordinating with the organization’s internal auditors when needed – This would produce more accurate and reliable data </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Overseeing and appointing the work of external auditors would prevent potential problems that may arise, such as access to information or people – In avoiding this, a smooth and credible external audit can be facilitated.</li> </ul>   With such advantages, the external auditors will be able to produce an unbiased audit regarding the public sector’s entities, with the guidance and supervision of its national body. This not only enhances and develops the relationship and communication of both parties, but also contributes to the improvement of the coordination and teamwork being exhibited in the public sector.   2) What is the role of the auditor in respect of policy decisions made by audited bodies?             Because auditors have the access to the financial data of organizations, they are governed by specific rules and policies in accordance to information and data disclosure. This is especially applicable to external auditors, who are considered as third parties; for these policies aim to prevent dissipating important data from getting into the wrong people (2006). In addition, because policymakers have always considered auditor changes to be important events, auditors are required to enable detailed and timely disclosures, and monitoring such disclosures, require the report by both the auditor and the client ( 2002). With such importance, the role of auditors on policy decision made by the organization must be given emphasis. This would reinforce the limitations of auditors and prevent irresponsible use of such valuable information.             With respect to policy decisions, the primary role of auditors is maintaining a good and effective communication at all stages of the audit, specifically to become clear about the process and goals of the audit. Second, because of some limits to openness that should be retained to maintain effectiveness of audit, the auditors must protect the interest of the organization, by not disclosing some details of their audits, such as those that address the risk of fraud. Third, auditors must fully consider the needs of the audited bodies in relation to the timing of the audit. In relevance to this, the auditors should agree a sensible timetable for submission of good quality and complete accounts. In addition, with respect to policies of the organization, the auditors must plan their work effectively to minimize business interruption. Moreover, the auditors must reduce changes in key audit personnel from one year to the next in allowing audit staff to develop a sound business understanding with the organization it audits, and deliver the full potential benefit of their accumulated knowledge and experience (2000). With these roles, auditors will be able to maintain and sustain a good relationship with the organization, thus, upholding compliance to the policies and rules being implemented by the organization. From this compliance, the auditors will be able to prevent the irresponsible use of such important information. Emphasizing and reinforcing their roles will enable and ensure the organizations they serve that their disclosed information and data will be protected and secured, thus, ensuring a smooth relationship between both parties.   3) In what ways could value for money auditing be applied to the private sector?             Value for money auditing is a recent expansion in the scope of auditing, and generally applies in the public sector, which expresses concern with regularity of spending and compliance with rules, laws, and regulations. It also referred to as performance auditing, comprehensive auditing, management auditing and efficiency auditing ( 2003). Its most important objective managing financial, human and physical resources, with due regard to economy, efficiency and effectiveness ( 2003). Despite its usefulness in the public sector, this form of auditing can also be useful and applicable in the private sector in accordance to the evaluation of its respective core values, including economy, efficiency and effectiveness. In addition, its relevance to the private sector can be applied in using the 4 Pillars Approach. <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Economy – This core value is defined as reducing the cost of resources that was used for an activity in relation to its appropriate quality, wherein relevant resources include physical, financial, human and information ( 2003). In value for money auditing, resources are given much importance because an organization must be able to obtain the right amount, quality and cost of resources, at the right place, and at the right time ( 2003). If this is very applicable and relevant in the public sector, then it is also equally applicable and relevant in the private sector for having the same resources. Private sectors must also give emphasis to economy to achieve cost reduction in their operations. With giving importance to economy, private sectors would be more efficient and effective in allocating their resources, thus, providing more for the different functions and teams within the organization. Moreover, this would enable the organization to give importance and care for the welfare of its employees, customers, stakeholders, and its community. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Efficiency – This refers to the relationship of inputs and outputs, which is relevant to the use of resources, and measuring it presumes the existence of acceptable standards ( 2003). Efficiency standards in relation to value for money auditing will be useful in private sectors because auditors may gather data indicating the usefulness and utilization of resources in an organization. Although such findings may not affect the activities of the organization, the findings may help organizations in the private sector with solutions or answers in relation to implementing changes and projects in the company. Efficiency measures may help organizations in the private sector assess and evaluate its resources in relation to its employees, partners, market, products, distribution channels, and processes and operations. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Effectiveness – This core value is defined as an ends oriented concept that measures the degree to which predetermined goals and objectives for a particular activity or program are achieved ( 2003). Effectiveness is related to achieving the goals and objectives of an organization, and thus, also relevant and applicable to the private sector. Like the government, the organizations in the private sector also have goals and objectives to pursue and target. Because effectiveness is related to goal achievement, this element can be discussed in relevance to resources and the other means to attain goals, including skills. Superior skills and resources, taken together, represent the ability of the organization to do more and better. Superior skills are the distinctive capabilities of people in the organization that distinguish them from people in organizations ( 2003). The use and interaction of the two factors enable an organization to achieve and attain its short-term and long-term objectives. </li> </ul> Lastly, the concept of value for money auditing is relevant to private sectors in line with the implementation of the 4 Pillar Approach. The 4 Pillar Approach involves 1) making the project objectives clear; 2) applying the proper processes; 3) selecting the best available deal; and 4) challenging or ensuring the deal makes sense (2006). In auditing, this approach is applicable to the value for money concept because like public organizations, the private sector needs the implementation of such approach in order to effectively and efficiently assess and evaluate their resources and their entities. With this approach, auditing will be more organized and systematic for it follows a framework and guide that will enable auditors gather information and data more effectively. In addition, with such an approach, auditors would ensure that their roles of preventing irresponsible use and misuse of important information would be achieved.   Conclusion             Auditors play an important role in any organization, both in private and public sectors. This importance lies on the fact that auditors are able to protect and organize the relevant data in any organization. With this, their work and role must be given emphasis, including the approach that they can use to improve.      Credit:ivythesis.typepad.com

Audit Commission

Audit Commission Introduction Business organizations in both public and private sectors perform a variety of tasks and re...