(3) It is important that deficiencies in the internal control system should be identified and reported up to senior management and the board of directors.

　　Internal audit

　　(1) Internal audit is an appraisal or monitoring activity established by management and directors for the review of the accounting and internal control systems as a service to the entity.

　　(2) Internal audit functions by examining, evaluating and reporting to management and directors on the adequacy and effectiveness of components of the accounting and internal control systems.

　　(3) Internal audit is a management control. It reviews the effectiveness of other controls within a company.

　　(4) The work of audit is varied – from reviewing financial controls through checking compliance with legislation.

　　(5) The internal audit department is normally under the control of a chief internal auditor who reports to the audit committee.

　　(Importance)

　　(1) In some situation, it is a statutory requirement to have internal audit.

　　(2) In some situation, it is required to have internal audit by codes of corporate governance.

　　(3) Internal audit provides an independence check on the control systems in a company.

　　(4) Internal audit is a management control