People often ask the necessity of doing an internal audit. If your customers depend on you to provide efficient, compliant, and secure services, then you must conduct an internal audit. Internal audit can play a vital role in refining the performance of the organization. The internal auditors support companies in identifying key risk factors. This allows the company to forestall potential future concerns as well as identifying current weaknesses. It also allows a company to identify processes and controls that are not working effectively and enable an opportunity to improve on these.
In short, internal auditors help organizations to prosper. It is done through a mixture of assurance and consulting. The assurance part of the work involves telling governors and managers how well the systems and procedures designed to keep the business on track are working.
Therefore, an internal audit is essential for a pre-emptive maneuver to maintain operational efficiency and financial reliability, and to safeguard assets. It provides independent assurance that an organization’s risk management, internal control, and governance are operating effectively.
What is the Process of an Internal Audit?
The parties included in an internal audit are the auditors, the audit committee, and the division being audited. The process of an internal audit is –
- The internal auditor randomly samples the documents, review manuals, and observe how workflows through a department or the whole firm. They will also look for signs of asset mismanagement, deception, and even test risk management controls
- The internal auditors prepare a report listings their findings and send them to the audit committee. The report comprises a summary of the processes and techniques used for completing the audit, a thorough description of findings and suggestions for enhancements to internal controls and process
- Finally, the committee analyses the report and suggests suitable revisions to the department concerned
Why is Internal Audit Important?
The benefits of internal audit to the business include –
1.Provides Objective Insight
Your work cannot be audited without having a definite conflict of interest. The internal auditor or the internal audit team, cannot have any operational responsibility to achieve this objective insight. In smaller situations where smaller businesses don’t have extra resources to devote to this, it is acceptable to cross-train workers in different departments to be able to audit another unit.
2.Decide the Extent of Audit
The internal audit report may provide the effectiveness of various systems in the company which may help the auditor in determining the organization's status of internal audit and efficiency of internal audit.
3.Improving Operational Practices
The operational audit examines the practices of a business instead of its finances. A functional inspection may reveal these inefficiencies or point to time lost on unnecessary paperwork. A rapidly expanding enterprise needs to monitor compliance with human resource laws as new employees join the business. Internal audit performs an important service in reviewing these functions.
4.Detection of Frauds
Regular internal audits assess an organization’s controls and help expose evidence of frauds, waste, or abuse. The occurrence of internal audits will depend on the department or procedure being examined. For example – in manufacturing, daily audits may be required, while for human resources, an annual review may be sufficient.
Internal auditors play the part of combining consulting and assurance. Confidence informs the management of how well systems and processes are designed to keep the company’s goals on track. Consulting advises the administration on how to improve those systems and processes if and when necessary.
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