2. Why Audit?
By
Mahfooz Ali Khan
Date 28th February,2014
Participants of 17th MCMC,
KARACHI

3. What are Accounts?
• Facts about Monetary matters
• Data pertaining to financial transactions for a particular
period
• Financial record compiled for decision makers
• A process of recording, classifying and summarizing in a
significant manner and in terms of money, transactions and
events, which are, in part at least, of financial character and
interpreting results thereof covering a specific period

4. Historical Background
of Audit
The origin of Audit activity
Start of Business Enterprises
Government Audit
Audit in modern democracies

5. What is Audit?
• Definition
“ An independent examination for expression of Opinion
on the Financial Statements of an entity by an appointed
Auditor in pursuance of that appointment and in
compliance with relevant statutory obligation.”
“ In general, the Mechanism within the process of
Accountability whereby the performance of those in
control of the resources of an organization is checked or
monitored by or on behalf of interested parties.”

6. Why do we require Audit?
• Tool of Accountability
• Monitoring tool in the hands of decision makers
• Statutory & Legislative requirement
– Articles 168 and 171 of the constitution of Islamic Republic
of Pakistan provides and Authorizes the Auditor General of
Pakistan to Audit the Accounts of the Federation and the
Provinces
– Article 171 of the Constitution provides for constitution of
Public Accounts Committee

7. Kinds of Audit
 Audit against provision of funds
 Audit against sanctions
 Audit against Rules and Regulations (Regularity Audit)
 System Based Audit
 Value for Money Audit or Performance Audit or 3E Audit
o Economy
o Efficiency and
o Effectiveness

8. Performance Audit
• Value for Money Audit
• Performance Audit
• 3 E Audit
– Economy
– Efficiency
– Effectiveness

9. Internal Controls
The plan of an Organization and all coordinate methods
and measures adopted within the organization, to
safeguard its assets, check the accuracy of its accounting
data, promote operational efficiency and encourage
adherence to prescribed managerial policies’.

10. Elements of Internal Controls
 Organizational Structure
 Procedures
 Physical facilities
 Accounting and other Records
 Reports
 Standard of Performance
 Internal Auditing

11. Organizational Structure
 Defining Objectives
 Grouping related activities
 Defining and assigning commensurate authority
 Maintaining proper span of control
 Providing minimum number of managerial levels
 Separating line and staff functions
 Delegating authority
 Recognizing individual status of employees
 Specifying jobs