Many people often ask about the necessity of performing an internal audit for the business. The answer can be either a yes or a no depending on the nature of the business. 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 current performance of the organization and making it more profitable. The internal auditors support companies in identifying key risk factors. This allows the company to address the 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 provide an opportunity to improve on these.
In short, internal auditors help business organizations to become more profitable and allow them to prosper. It is done through a mixture of Auditing, Assurance and Business 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 manoeuvre to maintain operational efficiency and financial reliability and to safeguard the assets of the business. 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 as follows –
- The internal auditor randomly samples the documents, review manuals, and observes the workflow of the various departments and what its effects are on the whole firm. These auditors will also look for signs of asset mismanagement, deception, and even test the risk management controls of the business.
- The internal auditors then prepare a report listings all their findings and send them to the audit committee. The report comprises a summary of all the processes and techniques used for completing the audit and a thorough description of every findings and suggestion for enhancements to internal controls and process of the business.
- Finally, the committee analyses the report and suggests suitable revisions to the department concerned and will also oversee these suggestions are properly followed by the business.
Why is Internal Audit Important?
There are many benefits of conducting an internal audit that is available to a business. These benefits of internal audit to the business include –
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 situations where smaller businesses don’t have the extra resources to devote to this problem, it is acceptable to cross-train workers in different departments to be able to audit another unit or department of the business.
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.
Improving Operational Practices
The Internal Audit examines the practices of a business instead as well as its finances. A functional inspection may reveal these inefficiencies and will 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 all of these functions.
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.
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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