Safeguarding Of Assets

Internal auditors should review the means of safeguarding assets and, as appropriate, verify the existence of such assets Safeguarding of assets is those policies and procedures that “provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

This definition is consistent with the definition provided in the Committee of Sponsoring Organizations (COSO), Reporting to External Parties, which provides the following definition of internal control over safeguarding of assets: Internal control over safeguarding of assets against unauthorized acquisition, use or disposition is a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements.

Such internal control can be judged effective if the board of directors and management have reasonable assurance that unauthorized acquisition, use or disposition of the entity’s assets that could have a material effect on the financial statements is being prevented or detected on a timely basis.

For example, a company has safeguarding controls over inventory tags (preventive controls) and also performs periodic physical inventory counts (detective control) timely in relation to its quarterly and annual financial reporting dates.

Although the physical inventory count does not safeguard the inventory from theft or loss, it prevents a material misstatement to the financial statements if performed effectively and timely.

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Therefore, given that the definitions of material weakness and significant deficiency relate to the likelihood of misstatement of the financial statements, the failure of a preventive control such as inventory tags will not result in a significant deficiency or material weakness if the detective control (physical inventory) prevents a misstatement of the financial statements.

Safeguarding Of Assets Meaning

The COSO Addendum also indicates that to the extent that such losses might occur, controls over financial reporting are effective if they provide reasonable assurance that those losses are properly reflected in the financial statements, thereby alerting financial statement users to consider the need for action. 340 Economical and Efficient Use of Resources Internal auditors should appraise the economy and efficiency with which resources are employed Internal auditors should appraise the economy and efficiency with which resources are employed.

Management is responsible for setting operating standards to measure an activity’s economical and efficient use of resources. internal auditors are responsible for determining whether: 1- Operating standards have been established for measuring economy and efficiency. 2-Established operating standards are understood and are being met. 3-Deviations from operating standards are identified and analyzed to those responsible for corrective action. 4-Corrective action has been taken.

Audits related to the economical and efficient use of resources should identify such conditions as: 1- Under-utilized facilities. 2- Nonproductive work. 3- Procedures which are not cost justified. 4- Overstaffing or understaffing. 350 Accomplishment of Established Objectives and Goals for Operations or Programs Internal auditors should review operations or programs to ascertain whether results are consistent with established objectives and goals and whether the operations or programs are being carried out as planned. Management is responsible for establishing operating or program objectives nd goals, developing and implementing control procedures, and accomplishing desired operating or program results. Internal auditors should ascertain whether such objectives and goals conform with those of the organization and whether they are being met. The term “operations” refers to the recurring activities of an organization directed toward producing a product or rendering a service. Such activities may include, but are not limited to, marketing, sales, production, purchasing, human resources, finance and accounting, and governmental assistance.

An operation’s results may be measured against established objectives and goals which may include budgets, time or production schedules, and/or operating plans. The term “programs” refers to special purpose activities of an organization. Such activities include but are not limited to the raising of capital, sale of a facility, fund-raising campaigns, new product or service introduction campaigns, capital expenditures, and special purpose government grants.

Special purpose activities may be short-term or long-term, spanning several years. When a program is completed, it generally ceases to exist. Program results may be measured against established program objectives and goals. Management is responsible for establishing criteria to determine if objectives and goals have been accomplished. Internal auditors should ascertain whether criteria have been established. If so, internal auditors should use such criteria for evaluation if they are considered adequate.

If management has not established criteria, or if the established criteria, in the internal auditors’ opinion, are less than adequate, internal auditors should report such conditions to the appropriate levels of management. Additionally, internal auditors may recommend appropriate courses of action depending on the circumstances. The internal auditors’ evaluation of the accomplishment of established objectives and goals may be carried out with respect to an entire operation or program or only a portion of it.

Audit objectives may include determining whether: The objectives and goals established by management for a proposed, new, or existing operation or program are adequate and have been effectively articulated and communicated. The operation or program achieves its desired level of interim or final results. The factors which inhibit satisfactory performance are identified, evaluated, and controlled in an appropriate manner. Management has considered alternatives for directing an operation or program which may yield more effective and efficient results.

An operation or program complements, duplicates, overlaps, or conflicts with other operations or programs. Controls for measuring and reporting the accomplishment of objectives and goals are established and are adequate. An operation or program is in compliance with policies, plans, procedures, laws, and regulations. Internal auditors should communicate the audit results to the appropriate levels of management. The report should state the criteria established by management and employed by internal auditors and disclose the nonexistence or inadequacy of any needed criteria.

If internal auditors formulated criteria by which to measure the accomplishment of objectives and goals, the report should clearly state that internal auditors formulated the criteria and then present the audit results. Internal auditors can provide assistance to managers who are developing objectives, goals, and systems by determining whether the underlying assumptions are appropriate; whether accurate, current, and relevant information is being used; and whether suitable controls have been incorporated into the operations or programs.

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Safeguarding Of Assets. (2019, Dec 05). Retrieved from https://paperap.com/paper-on-essay-safeguarding-of-assets/

Safeguarding Of Assets
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