Internal Audit is an organisation or department of people within a certain company tasked to provide unbiased, business organisations, independent reviews of system and processes. Internal audit within a company directly performs audit by staying within the management and use the company standards with in-house resources. Internal Audit is quite different than a statutory audit. The purpose of internal audit is to provide an objective source of information to the senior leaders or government bodies. These include the organisation’s risks, operational effectiveness, control environment and compliance with rules and regulations and applicable laws. Each of the individuals working for internal audit is called internal auditors.
Some of the objectives of internal audit are:
Proper Control: To keep proper control over the organisation is one of the main objectives of 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 organisation 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 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. 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 asset, the authorization is audited particularly by internal audit.
Keeps 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 organisation because due to its presence, an employee is less likely to do any fraudulence 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 organisation.
Some types of internal audit are:
Operational Audit: The efficiency and effectiveness of a particular department in an organisation 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 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 with a huge amount or may even prevent a company from doing further business.
Financial Audit: A financial audit is 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.
There are various courses for internal audit all over India pursuing which an aspirant can become a certified internal auditor. CIA courses and programmes 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.
This is an objective assurance and consulting activity to add value and improve the organisation. The services help boards and senior executives to manage enterprise risks in a better way.
It mainly focuses on the planning process, actuality and accuracy, product portfolio, pricing and distribution, market share, sales, costs, and profit margins.
The outsourcing of internal audit 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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1. What Are The Internal Audit Procedures?
The four phases of activities of internal audit are:
Planning: The internal audit planning process defines the objectives and laws and regulations, business standards, company policies, etc and reviews the results by setting a timeline and budget for the audit and creates an audit plan to execute.
Fieldwork: This is the actual act of auditing where the plan is executed which involves interviewing key personnel, reviewing necessary documents and identifying exceptions.
Reporting: The report has to be drafted initially and then be written so that the audience can read and understand.
Follow-up: The final stage is often neglected but is critical to ensure that the necessary recommendations have been implemented. If a firm fails to follow-up, then the changes will never be made.
2. What Value Does Internal Audit Provide to An Organisation?
Internal auditing courses are the cost centres of the companies. Though it does not generate revenue for the survival and prosperity of a company, a good internal audit function is required. They look beyond the reporting of financial statement and consider much broader issues such as the reputation of the organisation, strategic growth, operational efficiency, the way it treats its employees and most importantly its impact on the environment. The role of internal audit is vast and as it is not about the strength or efficiency of a company but also the weaknesses and deficiency that must be checked and rectified to provide growth in an organisation.