Audit: Meaning, External
Audit, Internal Audit,
Project Audit Mechanism
as per GOB and Donor
Guidelines
DEFINITION OF AUDIT
The word 'audit' comes from the Latin audire
meaning to hear.
An auditor is defined in Chamber dictionary as: a
hearer: one who audits accounts.
The auditors were deputed to hear suspected cases
of irregularities, corruption, fraud and other serious
offences in medieval times.
DEFINITION OF AUDIT
Audit is an independent examination of books of accounts,
other documents, stores, assets etc relating to receipts and
expenditure of the Government, statutory public authorities
and public enterprises with a view to ensure
that rules and orders framed by competent authority in
regard to financial matters have been followed;
that expenditure has been incurred with due regularity and
propriety;
that assets have been properly utilized and safeguarded;
that public resources have been used economically,
efficiently and effectively; and
that the accounts truly represent the fact/ true and fair
view.
INTERNAL AUDIT AND EXTERNAL AUDIT
COMPANY PERSPECTIVE
Basic point Internal Audit External Audit
Appointment Internal auditor is appointed by the External auditor is appointed by
company management the
shareholders of the company at
the AGM
Status He is a paid employee of the He is an independent individual
company
Qualification No compulsory qualification is The external auditor must be a
required Chartered Accountant
for the internal auditor
Responsibility Internal auditor serves the needs of His duty is compliance of
the statutory
management requirements
Basic job Review of operations and internal Expression of an independent
control for developing improvements opinion on financial statements
and ensuring compliance of policies
and
procedures
Scope of work Determined by the management Determined the companies act
1994
Internal Audit and External Audit
in the Government
Internal audit is an unit of the government
entity does the auditing job of the expenditure.
It is concurrent in nature. The internal audit
reports directly to head of the
office/department.
External audit is an independent act by the
Comptroller and Auditor General on the accounts
of the Government bodies. The C&AG is
empowered by the constitution and answerable
to the people through parliament.
FUNCTIONS OF PROJECT AUDIT
To conduct audit of all the Foreign Aided Projects
included in the Annual Development Program (ADP) of
the Govt.
To issue Audit Inspection Report (AIR) to Ministry,
Project Director and Development Partners
To meet the reporting deadlines of Development
Partners
To process the results of audit for preparing audit
reports as per C&AG’s requirement.
To follow up unsettled audit observations.
SCOPE OF AUDIT
Audit is conducted following ISA and practices of
INTOSAI/SAI Bangladesh.
DPP,TAPP
Loan Agreement, DCA, PRODOC
Consultant’s study report
Project Appraisal Report
Review missions report.
DPs guidelines
Contract documents etc
PROCESS OF AUDIT
Prepare Audit Reports in three
Audit Plan parts:
– an executive summary
– audit observations
Audit Program – annexure
Provide training &
briefing to audit team
Send to Ministry for
their comments.
Auditing
Supervision &
Audit Inspection
Inspection
Report
OPERATIONAL PLAN
Understanding the Project
Identifying Project Cost/Operations
Setting the Materiality
Assessing Risk
Developing audit objectives
Developing Audit Scope
Developing Audit Criteria
Designing Audit Approach
Developing Audit Program
FIELD AUDIT
Field Audit involves gathering of evidence to
allow auditor to:
Conclude against each audit objectives
Develop observations whether project performance is in
consistent with targets
Support the audit recommendations and conclusions.
INTERNAL CONTROL
Internal controls are designed:
To ensure that only valid transactions are processed in
an orderly and efficient manner.
To secure the completeness and accuracy of the records
and validity of the entries therein.
To safeguard the assets.
To prevent and detect waste, corruption and fraud.
To ensure achievement of project objectives
economically, efficiently and effectively.
To ensure quality, quantity and cost of project
operations at the desired level.
DEVELOPING
AUDIT OBSERVATIONS
Significant deficiencies, weakness and problems
caused by non- compliance with standards,
regulations, authority and non-adherence to
norms of economy and efficiency impairing the
purpose of the project raises issues that are
addressed in audit observations.
AUDIT INSPECTION REPORT
Auditor’s report (Certified Financial Statement)
Management letter
Section 1: General information about project
Audit scope
Financial operation and control
Equipment management
Monitoring Evaluation & Reporting
Adequacy of management structure
Section 2: Audit observations
Part-A: Para including SFI
Part-B: Ordinary/Normal Para
Overall Audit Results
Section 3: Follow up action
Formation of Audit Observation
Title
Description
Nature of Irregularities
Reply of the Auditee
Audit Comments
Audit Recommendations
MAJOR AREAS TO FOCUS
Attainment of project activities ( Physical and
Financial)
Maintenance of Accounting Records (with full
discloser)
Procurement
Asset Management
Research and training
Consultancy
IT & VAT
PRINCIPLES OF AUDITING
Seven principles as extracted
from INTOSAI
PRINCIPLE 1
All institutions financed with or supported
by public money should be subject to
audit by supreme audit institutions, to
promote better governance, transparency
and accountability.
PRINCIPLE -2
The external auditor is fully
independent in the conduct of the
audit
PRINCIPLE-3
The external auditor has sufficient
authority to carry out the audit in a
manner that meets best practice in
the audit of public money
PRINCIPLE-4
The external auditor has
adequate resources to carry out
the audit
PRINCIPLE-5
The external auditor has the right and
obligation to report on the results of
the audit.
PRINCIPLE -6
The external auditor meets relevant
professional and ethical standards
PRINCIPLE-7
The external auditor is appointed in
an open, fair and transparent
manner
MANDATE OF C&AG
Article 128 of the Constitution of
Bangladesh
COMPLIANCE WITH RULES & REGULATIONS
Compliance with Public Procurement Act
Compliance with GFR, TR, Delegation of
Financial Power, fund release order etc.
Special Regulations applicable for the Entity.
Ensure Parliamentary requirements.
Various circulars of NBR.
Audit Code and Audit Standards.
Adherence to PP/TAPP in terms of project.
management (for projects).
TYPES OF AUDIT
Audit can be classified into three:
Financial auditing
Regularity or Compliance auditing,
Performance or Value for Money
auditing.
FINANCIAL AUDIT
Verifies the accuracy and fairness of
financial statements presented.
An independent examination and
evaluation to provide reliable and
objective information to the
parliament.
COMPLIANCE AUDIT
A regularity or compliance audit is an
examination of the management of
expenditures and receipts, and financial
systems and transactions of the audited
entity to determine whether the entity has
complied with specific applicable laws,
rules, regulations, procedures, etc.
Performance Audit
Performance audit is an objective and
systematic examination of an entity’s
programme, activity, function, or
management systems and procedures to
provide an assessment of whether the
entity in pursuit of predetermined goals
has achieved economy, efficiency, and
effectiveness in the utilization of its
resources.
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