Internal audit is a formal inspection of a company’s internal controls, like accounting and corporate governance, with the aim of proposing improvements in the system and spotting any inadequacies before they are discovered in an external audit. Its role is to verify and ascertain that one or more functions of an organization are operating effectively, efficiently and/or lawfully.
Advantages of an Internal Audit
- An internal audit functions as a management self-regulating procedure for any company
- Via an internal audit, one can gauge one’s company’s:
- Transparency and accuracy of financial transactions
- Degree of compliance with corporate regulation and institutional policies
- Internal audit provides an independent assessment of an organization’s financial and operational activities
- The scope and objectives of the audit process are defined by management and not by external agencies.
- Reports generated are directly shown to management without interference from external agencies.
- Successful implementation of the audit process increases accountability within the organisation.
- Auditing helps in the identification of anomalies and shortcomings of the organisation.
- It serves as an early warning system and provides actionable steps to overcome complex business problems.
Read: Need of Internal Audit
Role of Internal Audit in Finance
Internal audit comprises the following activities, which directly impact the financial health of a company:
1. Compliance Review
Compliance review sees to it that an organisation is following norms, regulations, laws, codes of practice and guidelines, as they apply individually and collectively to a company’s business functions.
2. Risk Evaluation
An internal audit helps in identifying key activities and related risk factors, assessing their importance. With time, internal audit practices have evolved to follow a proactive and risk-based approach. This enables a company to apprehend any possible future concerns and opportunities, in addition to identifying current issues.
3. Business Process Analysis
Internal audit invariably reviews a company’s processes and operations to establish if results are in line with business objectives, and if the former are being carried out as planned.
4. Management Advisory
Internal audit looks into the extent of implementation of management policies, as well as the tone and risk management culture of a company. This aids the management to modify or recourse company action plans.
Features of Internal Auditing
With an internal auditing service, you can ensure the better functioning of your business. Auditing is an efficient way of understanding business risks and suitable solutions. Some of the features of internal auditing include:
- Risk assessment
- Systematic procedures
- Performance Testing
How does Internal Auditing add value to a business?
Including the internal audit process in your business activities can turn out to be quite beneficial in the long term. The following are some of the ways in which having an internal audit can add value to your business:
- It increases the overall efficiency of the company.
- Auditing helps in the improvement of business operations and workflow.
- It provides suggestions for limiting expenses that are not required and working towards profitability.
- It ensures transparency in business and guides the decision-making process.
- It determines the future objectives of the organisation and identifies various short-term and long-term goals.
Difference Between Internal and External Audit
An external audit is carried out primarily for an annual statutory audit of financial accounts, checking its alignment with a company’s actual financial standing. Consequently, external auditors often inspect and verify internal controls instantiated to manage risks which could affect financial accounts, to check if they are in order.
Here are the key differences between internal and external audit.
Conducted to identify systemic inadequacies, to initiate management action for carrying out recommendations for change leading to improvement in performance and control
Conducted to formally check the financial statements of an organization, and to evaluate the effectiveness of internal audit work
Examine issues related to company business practices and risks
Examines the financial/statutory records and checks their regulatory alignment
An internal auditor is generally an employee of the company conducting the audit
An external auditor is hired on a temporary basis from a third-party firm
Responsible to the management of the company
Responsible mainly to the shareholders of the company
Can provide advice and other consulting assistance to the company
Generally not involved in supporting the company being audited too closely
Can be conducted anytime, and at desired intervals
Is commonly conducted on an annual basis
Why You Should Conduct an Internal Audit for Your Company
Internal audit services handle affairs that are primarily instrumental to the survival and growth of any organization. An internal audit would look beyond financial risks and accounts to encompass wider issues like a company’s revenue metrics, customer reputation, its environmental impact and employee satisfaction.
Internal auditors help an organization to succeed and prosper. This is achieved via a combination of assurance and consulting. Assurance involves telling company stakeholders how well the systemic functions and processes of a company are working. Consulting caters to refining these functions and processes where called for.
If you are a company operating in Dubai, no matter large or small, it is advisable to plan your control strategy with an audit firm in Dubai. We at JAXA can help you with it. We have over a decade of experience auditing and consulting corporations, and are one of the preferred audit firms in UAE. Contact us for any information on internal audit; our certified internal auditors would be glad to assist.