What is Internal Audit?
Internal Audit is a phenomenon for when an organization or department is tasked with providing their independent reviews of the system in an unbiased way along with the processes. Internal Audit is performed within a company in a direct manner with keeping the company standards in mind. Some people confuse it with statutory audits, from which Internal Audits are quite different.
Objectives of Internal Audit
The main purpose or objective of an Internal Audit comes as the provider of objective information to the upper management, government bodies, etc. Such objective information includes that of the control over the environment, risks for the organization, and much more. Each of the individuals who come for the Internal Audit are known as Internal Auditors, who are themselves sent by their organization.
Proper Control: To keep proper control over the organization is one of the main objectives of an Internal Audit. The authenticity of the financial records and the efficiency of the firm have to be maintained and the management needs proper assurance. The Internal Audit helps to establish both.
Perfect Accounting System: The accounting system of the organization is thoroughly checked by an Internal Audit. From vouchers to the authority of transactions to accuracy in mathematics all serve the purpose of Internal Audit. All entries are verified so that the chance of mistakes or frauds can be reduced.
Review of Business: The financial and operational aspects of a business is to be checked by the Internal Audit. The Internal Audit process checks out the mistakes, strengths and weaknesses in the business.
Asset Protection: Internal Audit process performs the valuation and verification of an asset. In case of any special transactions like purchase, sale or revaluation of assets, the authorization is audited particularly by Internal Audit.
Keep a Check on Errors: There will be mistakes in financial records and is checked at the end of a financial year. But with Internal Audit, the mistakes are spotted and rectified immediately.
Detection of Fraud: This is another main purpose of Internal Audit. In fact, Internal Audit is helpful to the organization because due to its presence, an employee is less likely to do any fraudulent activity. There will be no time in making fraud and how the Internal Audit process will run and so this will end up committing less fraud in an organization.
Types of Internal Audit
Some types of Internal Audit are:
Operational Audit: The efficiency and effectiveness of a particular department in an organization is evaluated by the operational audit. Some areas of the operational audit are organizational structure, the accuracy of data, processes and procedures, management and security of staffing, assets and productivity.
Environmental Audit: The impact of the operations of a company on the environment is assessed by environmental audits. Assessment of the company’s compliance with certain environmental laws and regulations is also maintained.
Compliance Audit: Evaluation of compliance with applicable laws, policies, regulations, and procedures. Failure to comply with laws like the Foreign Corrupt Practices Act (FCPA), General Data Protection Regulation (GDPA), may result in fines of huge amounts or may even prevent a company from doing further business.
Financial Audit: A financial audit is a historically oriented and independent evaluation process performed to maintain fairness, accuracy, and reliability of financial data. The objective is to ensure that the financial activity of a unit or area or department is accurately reflected in the financial reports.
Internal Audit Courses
There are various courses for internal audit all over India pursuing which an aspirant can become a certified internal auditor. CIA courses and programs offer students professional knowledge in internal audit. ISO internal audit courses provide training with ISO 9001-2015 quality management systems and internal auditor training course.
Internal Audit Consulting
This is an objective assurance and consulting activity to add value and improve the organization. The services help boards and senior executives to manage enterprise risks in a better way.
Internal Marketing Audit
It mainly focuses on the planning process, actuality and accuracy, product portfolio, pricing and distribution, market share, sales, costs, and profit margins.
Internal Audit Outsourcing
The outsourcing of internal audits allows the firm to employ a temporary staff or even audit experts to perform tests, objective analysis, and issue reports. Basically, it helps the company to maintain an effective function of internal audit.
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FAQs on Internal Audit
1. How is Internal Audit different from External Audit?
Internal Audits and External Audits have a good difference between them. They are both similar in nature, which as the name suggests is auditing. Now, when it comes to their differences, the following will help you understand them:
Internal Auditors or the employees of a company perform the audit whereas in terms of External Audits, it is different. External Audits are done by a CPA or CA firm which is hired by the organization.
Internal auditors have to report to the upper management, board of directors, etc. However, External Auditors are the ones who have to report to the creditors of the company, their creditors.
2. What is the reason to perform Internal Audits?
Internal Audits are performed in order to study and assess the situation of the organization. The auditors have to assess and then try to improve the results the next time. One of the main reasons to perform the Internal Audits is due to the fact that all the employees have to report their findings to the internal people of the mall. The solutions to the various problems that may arise include many ranging from risk management to effectiveness of governance.
3. Why Do Organizations Have Internal Audits?
The main reason for performing Internal Audits is the fact that all of the organizations, in India and in many other places, are bound to provide accurate financial statements. While Internal Audit is being performed, it is ensured by the employees of the organization that there are no mistakes. Such procedures are also helpful in saving the company from any sort of fraud, etc. Apart from the mistakes, they also need to determine whether or not there is compliance with the laws and regulations.
4. What is the procedure for Internal Audits?
There are a total of four phases of activities involved in the Internal Audits:
Planning: Planning is a process at the time of Internal Auditing that helps in determining which all laws and regulations must be followed.
Fieldwork: Executing the very plans which were planned in the previous step is next. Field work is when the execution is done properly by reviewing the necessary documents, interviewing personnels, and identifying exceptions.
Reporting: Internal Audits might be prepared by the employees within the organization. However, there still needs to be a report that has to be drafted in such a way that it can be understood by the audience as well.
Follow-Up: The final stage comes as a neglect mostly, but is actually one of the most important parts of the job. A firm needs to follow up on the status of things which were critical as per the previous step, that is the reports. In case there have been recommendations, then they should have been implemented and analyzed the results or at least they need to be followed.
5. What value does Internal Audit provide to an organization?
Internal Auditing is one of the most significant activities for the organizations, It is one where the Internal Audits are done by the employees with many setbacks and successes identified. In order to generate revenue and find the best solutions for many of the problems. This provides a company a very good chance to survive on their own and get back up. A company can also identify its own weaknesses as well as strengths in an Internal Audit report, from which they just need to take out the solutions and implement them.