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internal audit department
. This functions as an internal financial control. 
One of its responsibilities is to control the risks of fraud and error. For this reason it should be separate 
from the finance department and the chief internal auditor should report to the audit committee of the 
board of directors, bypassing the Financial Director. Internal audit is covered in Chapter 9. 
 
2
Nature, principles and scope of accounting 
You may have a wide understanding of what accounting is about. Your job may be in one area or type of 
accounting, but you must understand the breadth of work which an accountant undertakes.
2.1 Financial accounting and management accounting 
Financial accounting
is mainly a method of reporting the results and financial position of a business. 
It is not primarily concerned with providing information towards the more efficient conduct of the 
business. Although financial accounts are of interest to management, their principal function is to satisfy 
the information needs of persons not involved in the day-to-day running of the business. 
This is particularly clear in the context of the published accounts of limited companies. 
Accounting 
Standards 
(and company law) prescribe that a company should 
produce accounts to be presented to 
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PART C: ACCOUNTING AND REPORTING SYSTEMS, CONTROLS AND COMPLIANCE 
 
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the shareholders
. There are usually detailed regulations on what the accounts must contain and this 
enables shareholders to assess how well the directors (or management board) have run the company. 
Also there are certain outsiders who need information about a company: suppliers, customers, 
employees, tax authorities, the general public. Their information needs are satisfied, wholly or in part, by 
the company's published financial statements.