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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