All about internal audit

[ecis2016.org] Know all about internal audit in this article

What is an internal audit? 

An organisation’s internal controls, as well as its corporate procedures, processes, and methodologies, are all subject to an internal audit, an independent service that evaluates these aspects. Compliance with the many regulations relevant to an organisation may be improved with the assistance of an internal audit. An organisation has the ability to compile its books and records in accordance with the reporting standards and regulatory obligations that are relevant.

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Internal audit fundamentals

Internal audits are conducted with the intention of determining whether or not an organisation is meeting its own criteria for efficiency and productivity. The actions of an organisation, such as conducting transactions, receiving delivery, and paying premiums, may all be governed by a predetermined set of guidelines. Finding out whether or not staff are adhering to internal operating standards is another benefit of doing an internal audit.

A problem or inefficiency may be identified with the use of an internal audit, which then enables the appropriate remedial actions to be taken. Frauds committed by workers, such as misappropriation of money, are detectable via the use of internal audits. The audit may also determine whether or not there were intentional cost overruns and whether or not one specific vendor was given precedence over other vendors who offered lower prices.

There is a possibility that there is a need for identifying staff rotation between various positions and responsibilities. During an internal audit, any possible dangers or economic difficulties may be investigated. A company has the ability to stop the flow of financial loss. The method makes it possible to identify and rectify any lapses in a procedure that may have occurred prior to the required audit.

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An internal audit may take place once a month, once every three months, or once every year. The option selected will be determined by the requirements of the organisation. Under the Companies Act of 2013, a corporation is recommended to hire an internal auditor in specific circumstances. This is one of the requirements. When it comes to carrying out an internal audit, an internal auditor has a variety of options available to them in terms of evaluation or analytical methods to use.

Types of internal audit

An organisation’s ability to maintain prompt compliance with the regulations may be verified via an internal audit. The audit offers some measure of protection and assists in mitigating the risk that may arise as a result of fraudulent activity, abuse of authority, or any other situation. An internal auditor offers management an impartial examination of the procedures and accounts of the company. Utilising the expertise of an independent consultant is one way that management may boost their overall financial performance.

These kinds of audits are divided into various categories according to the factors that determine them. These are the following:

• Compliance audits

A company’s compliance with the norms, guidelines and legislation of the district, state, or country in which it operates is one of the factors that an internal auditor will look into. Companies are liable for a number of financial penalties as well as other forms of punishment in the event that they do not comply with the regulations. 

• IT audits

Audits of information technology always entail investigations and examinations of the systems that support the technology. In this scenario, the auditor examines the equipment and software technology to see whether or not it is handling instructions and whether or not it is performing correctly. This audit addresses the cyber concerns that may demand a prompt response from the relevant parties. In addition to this, the expert investigates the general controls of IT, the functioning of the system, and the procedures for backup and recovery.

• Performance audits

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When carrying out this kind of inspection, the auditor checks to make sure that the requirements set by the company and its key competencies are being fulfilled in an effective manner. These standards are established by the administration, and professionals and the whole workforce are held to them with the expectation that they will improve their performance while continuing to comply with the norms and standards.

• Operational audits

The operational auditors are responsible for addressing any concerns about the operating framework of the company. They investigate how well a company operates in order to meet the goals it has established. They evaluate every part of the organisation, beginning with the quality assurance activity and moving on to the financial management and the functions of human resources. In addition to this, they provide guidance and recommendations aimed at enhancing the operational processes of the organisation in order to increase its productivity.

• Environmental audits

It is important for every organisation to maintain an atmosphere that is beneficial to the environment. When requested to do environmental audits, auditors check to make sure that the location in question does not infringe on any environmental rules or regulations.

Internal audit vs external audit

Whereas internal audits analyse and enhance a company’s efficiency, external audits verify and ensure the correctness of a company’s financial reporting.  In addition to this, there are a variety of additional distinctions, which are detailed in the following table.

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