Page 323 - CA Final PARAM Digital Book.

QNO Appraisal of Organisational Structure Old Course-- (N18M, N18E)
614.010 TITANIUM CNO – IA.030
Internal auditor makes an appraisal of organization structure to ensure that it is in harmony with the
objectives of the entity, besides checking of financial transactions and operational activities of the
entity- Elaborate.
OR
ABC Ltd. is engaged in manufacturing of Yarns and Towels. It sells its product in both domestic as well as
in International Market. It has achieved turnover of 200 crores in the F.Y. 2016-17. Directors of the
company realized that they are not managing the company professionally and thereby request your firm
of Internal Auditors for appraisal of its organizational structure to ascertain whether it is in harmony

with the objectives of ABC (P) Ltd. Comment.
Answer ➢ Review of the Organisation Structure –
Introduction, Harmony between Structure & Objectives

The internal auditor should conduct an appraisal of the organisation structure to
ascertain whether it is in harmony with the objectives of the enterprise and whether the
assignment of responsibilities is in consonance therewith.

What to evaluate?
For this purpose:
• He should review the manner in which the activities of the enterprise are
grouped for managerial control. It is also important to review whether
responsibility and authority are in harmony with the grouping pattern.
• The internal auditor should examine the organization chart to find out whether
the structure is simple and economical and that no function enjoys an undue
dominance over the others.
• He should particularly see that the responsibilities of managerial staff at
headquarters do not overlap with those of chief executives at operating units.
He should examine whether there is a satisfactory balance between authority
and responsibility of important executives.
• The internal auditor should examine the reasonableness of the span of control
of each executive (the number of sub-ordinates that an executive controls). He
should examine whether there is a unity of command i.e., whether each person
reports only to one superior.
• Where dual responsibilities cannot be avoided, the primary one should be
specified and the specific responsibility to each senior fixed. This must be
made known to all concerned.
• Finally, he should evaluate the process of managerial development in the
enterprise. This is a vital aspect in a fast-growing enterprise.

QNO Evaluation of the Internal Audit Function. New Course – (SM23)
614.200 TITANIUM CNO -- 610.080
State the important aspects to be considered by the External auditor in the evaluation of the Internal
Audit Function.
Answer Evaluation of Internal Audit Functions by External Auditor: The external auditor’s general evaluation of the
internal audit function will assist him in determining the extent to which he can place reliance upon the
work of the internal auditor. The external auditor should document his evaluation and conclusions in this
respect. The important aspects to be considered in this context are:

(a) Organisational Status - Whether internal audit is undertaken by an outside agency or by an
internal audit department within the entity itself, the internal auditor reports to the management.
In an ideal situation, his reports to the highest level of management and are free of any other
operating responsibility. Any constraints or restrictions placed upon his work by management
should be carefully evaluated. In particular, the internal auditor should be free to communicate
fully with the external auditor.

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