Internal Audit is the process of evaluating a company's internal controls, including its accounting processes and corporate governance. The internal audit report ensures that the company complies with state regulations and laws and maintains timely financial reporting. Operational efficiency is possible with Internal Audit as problems are identified and corrected before External Audit discovers them.
What is the Need for an Internal Audit?
The Internal Audit consists of 3 phases:
This is the beginning of the Audit and performed by the Audit Team with the following activities:
- Distribution of Notification of Audit
- Conduct Pre-Audit Meetings
- Interview Department Personnel
- Review Company Policies and Procedures
- Understand and Document the process of Business
- Do Risk Assessment
- Prepare Audit Program
- Prepare Audit Budget
- Select items that will be subjected to Audit
Is the second phase, where the audit team will be physically on-site for the following:
- Review Supporting Documents
- Conduct Interviews with Department Personnel
- Perform analyses, and determine exemptions
- Identify recommendations for improvement
- Prepare the report on the findings
- Department writes a response and plans corrective actions.
In the 3rd phase, the auditor in charge will write the Audit Report and communicates the Audit Results.
- Issue a draft report before discussing it with the unit management
- Issue factual, clear, and concise Final Report
- Distribution of report to Higher Management, External Auditors, and Audit sub-committee
Importance of Internal Audit to a Company
The Internal Audit is aimed to provide an accurate and intuitive understanding of a company's culture, policies, and procedures, by demonstrating that internal controls are operating effectively, with risk mitigation control and compliance with relevant laws.
These are the reasons why an Internal Audit is essential to a company:
1. Provide objective insight
This means that the Audit is done objectively, and findings are based on factual evidence, not personal opinions.
2. Improved efficiency of operations
Continuously monitoring and reviewing company policies and processes through Internal Audit assures that the procedures are followed religiously.
3. Evaluate risks and protects assets
Internal Audits can identify risks and help create a strategy to prepare for and lessen the effects of threats faced by an organisation.
4. Assess organisational control
Internal Audit evaluates the process by which the managers direct attention, motivate, and encourage employees to help meet the company's objectives.
5. Ensure compliance with relevant laws and regulations
It gives you peace of mind knowing that you are ready for your next External Audit.
6. Decide the Extent of Audit
The internal audit report will provide the current effectiveness of various systems in the company which will help the auditor in determining the organization's status of efficiency of the internal audit. It will also help find the various loopholes and bottlenecks in the business and will provide the management with a way to address these problems.
7. Detection of Frauds
Regular internal audits assess an organization’s controls and help expose evidence of frauds, wastage of resources, or abuse of power in the company. The occurrence of internal audits will depend on the department or procedure being examined. For example – in the manufacturing department, daily audits may be required, while for human resources, an annual review may be sufficient.
Core Objectives of Internal Audit
The following points mentioned below are the core objectives of an internal audit:
1. Evaluate Internal Controls
Controls are strategies that companies authorize to oversee risk and improve the probability that everybody pursues similar objectives and targets. Internal auditors assess controls in territories like operational effectiveness, information and data security, and financial compliance.
These controls can be preventive, intended to keep mistakes from being presented, or detective, looking to discover blunders or abnormalities afterward. Auditors investigate how these controls are serving authoritative objectives.
2. Monitor Regulatory Compliance
The role of internal audits in corporate administration is to assess whether the company's cycles, plans, and principles are most appropriate to accomplish its targets and serve its partners lawfully and morally. By and large, it takes on an advisory job, educating the initiative gathering of control issues. The audit additionally evaluates consistency with state and government rules and guidelines.
Especially in companies or enterprises with administration issues before, an internal audit may take on a more proper oversight job. For instance, if a business experience got into legitimate difficulty for financial mistakes, this infringement of corporate moral principles would probably require an appropriate internal audit reaction.
3. Mitigate Risk Factors
A business faces chances each day, and internal auditors center around issues that could keep the company from meeting its destinations. Internal audit analyzes a company's capacity to bear risk, its arrangements for recognizing and moderating risk, and conveying and checking risk appropriately.
One key role is to offer confirmation that risks have been characterized enough and effectively assessed. An internal auditor may decide, for instance, that developing risks aren't in effect appropriately viewed as, for example, the possible troublesome impact of another innovation. The auditor would caution the proprietor or leadership group of this inadequacy.
4. Record Findings
For the most part, an internal auditor's role in a company is to report discoveries to the CFO or the central risk official. These reports may make proposals for amending issues, yet a definitive activity is up to the business proprietor or the board.
Internal audits aim to distinguish zones of concern, present them to the board in a reasonable manner and give ownership the data it needs to settle on an educated choice on the most proficient method to correct lacks going ahead.
5. Asset Protection
During the process of internal audit, there is consistently a valuation and confirmation of a benefit. There is likewise a physical check of the proprietorship and ownership of the asset.
Jaxa Auditors is a company that specialises in Internal Audit and other accounting services. We have a team of chartered accountants that can help you with your basic and complex accounting needs. Call us today at 971 4 2207355 or email us at firstname.lastname@example.org let us help you build your Internal Audit Program.