Every business is set up with the intention to make a profit for its management and shareholders and investors, but during the course of business, the company faces certain problems that create an impediment. This obstruction needs to be resolved so that the business goes back to the profit-making mode and both the management as well as the investors are happy. One of the best ways to bring the business back on track is to conduct an Internal Audit.
In this blog, we will learn what an internal audit is and when the management should conduct an internal audit for a business.
What is the Meaning of Internal Audit?
An Internal Audit can be defined as a process in which a detailed examination of the company is conducted in order to find out the current financial standing of the company. It is performed by either an individual (which is known as the auditor) or a third party (known as the auditing team). In both cases, the auditor must be familiar with the functioning of the company and should also have the knowledge of how he should proceed with the auditing process. This activity helps in assuring the people and its investors that the company is working diligently towards its Mission and Vision.
The main aim of an internal audit is to understand the financial condition of the company and to find out any pitfalls present in the business activities. The Internal audit also helps to instil a sense of confidence in the present and potential investors about the direction of the business. Read more on Importance and Need of Internal Audit.
When should a Business conduct an Internal Audit?
From time to time, the management of a company should conduct the audit of a company so that it can gauge the current conditions of the business and make proper future arrangements for the business. The audit services will also play a key role in resolving any efficiency and fraud issues in the company. The internal audit should be conducted by the management in the following cases:
- If you Notice a Misappropriation in your Account Books
No management can give specifics on how a company will perform before time. They can only provide an estimate according to the historical data. But if the actual numbers are very different than the estimation, this means that there may be some problem that is not known to the management and in order to remedy this situation, the company management should conduct an internal audit.
- If there is a Decline in the Cash Flow
The flow of cash into and out of business can tell a lot about the company management. The flow of cash may be affected by the present business environment, so there can be a discrepancy once or twice, but if this discrepancy persists then it is the duty of the management to look into the matter and provide an appropriate solution for the problem.
- Before making any New Investments
Before making an investment, the management should be well versed in the present financial condition of the company. Similar is the condition when the management is going to generate funds either through an IPO (Initial Public Offer), Loans, or any other method. The management should understand the financial condition of the business before taking any steps with the aim to generate funds.
- When there is a new Joining or a Key Employee leaves
The leaving or joining of a key employee can affect the profitability of the company. This effect could be an adverse effect or a good effect. An audit should be done to find out what work was handled by the person who was previously handling that position. This will provide an insight as to how any other person can perform the work with complete efficiency.
- On a Regular Basis
An internal audit should be conducted periodically as decided by the management due to its numerous benefits. This way, the management will constantly have the knowledge of the financial condition of the business and will also have time to plan for the future of the business. This will also improve the profitability and greatly increase the customer satisfaction of the business.
The management can also look into conducting an external audit, but it is preferred that first, an internal audit is conducted so that the management knows the current picture of the financial health of the business.
Management should take the assistance of a reputed Auditing firm to conduct the Internal Audit of the business. One reputed auditing firm in the United Arab Emirates is JAXA Chartered Accountants. They are an ISO certified organization and aim to provide the best services to its clients.
They also provide various other services to its clients, such as Accounting Services, Tax-Related Services, and many other services. For details on the services provided by JAXA, Contact Us. We will be happy to answer all your queries.