In this tutorial, we will learn about internal audits and its objectives; the management needs assurance of the authenticity of the financial records and the firm’s operations’ efficiency.
An internal audit is an evaluation and analysis of the business operation conducted by the internal audit staff. It is part of the overall system of internal control established in an organization.
Internal audit is the independent appraisal activity within an organization for the review of accounting, financial, and other business practices as protective and constructive arms of management. It is a type of control which functions by measuring and evaluating the effectiveness of a different kind of restrictions.
In big organizations, an internal audit is carried out by the team of professionals in the organization. Internal audits are not mandatory, but the organization gets the internal audit done to evaluate the effectiveness of internal control, soundness of the financial system, efficiency of business processes, etc. It provides management with assurance about the organization’s control process and aids in the early detection of inefficiencies or fraud.
OBJECTIVES OF INTERNAL AUDIT:
PROPER CONTROL:
An internal audit is to keep appropriate control over business activities. When there is adequate control, there is maximum efficiency. The internal monitor can determine the degree of control overwork.
ACCOUNTING SYSTEM:
The purpose of an internal audit is to evaluate the accounting system. It is concerned with checking proper authority for transactions like purchases, retirement, and fixed assets disposal. The voucher can be compared with the entries to determine those figures and facts.
HELP MANAGEMENT:
The purpose of internal audit is to help the management. Internal auditors can point out the weakness—the internal audit used as a tool for correcting the situation. The management functions can perform correctly.
WORKING REVIEW:
The purpose of an internal audit is to review the working of a business. The operation of the current year can be examined in detail. There is a need to locate the weak points. The corrective measures can be taken for proper working.
Fair Statements:
The purpose of an internal audit is to detect the error in the accounting records. The work of internal audit can help the management to see that the accounting record is in order.
Check Error:
The purpose of an internal audit is to detect the errors in the accounting records. If the internal auditor’s work goes side by side, there are minimum chances of mistakes.
Detect Fraud:
The purpose of internal audit is to detect fraud in the books of accounting. When the work of the accounting staff is over, the internal audit is started. Accounting staff remains alert because there is no time gap between recording and checking. Thus detection of fraud is possible with it.
Asset Protection:
An internal audit is to protect the assets. The proper records of assets must be there. The internal auditor can examine valuation, verification, and possession.
Internal Check:
The purpose of an internal audit is to evaluate the personal check. There is a division of duties among the employees. When all staff members are working correctly, it means there is an adequate internal check system.
Special Investigation:
The internal audit may be to conduct a special investigation about any business matter—internal audit used as a tool to note the effectiveness of management function.
Use Of Resources:
The purpose of an internal audit is to determine the proper use of resources. The misuse of funds can increase the cost of doing business. The appropriate use of resources means there is efficiency on the part of management.
Determine Liability:
The purpose of internal audit is to determine the liabilities of employees. The duties are divided among the staff; it is easy to note the negligence of the employees. The internal audit can pinpoint the personal responsibilities for carelessness.
Accounting Policies:
The purpose of an internal audit is to examine accounting policies. The understanding of the accounting system and procedure is helpful to device effective audit plans and procedures. The internal auditor may find any weakness in internal control.
Provide Suggestions:
The purpose of an internal audit is to provide suggestions for the improvement of business activities. The internal audit staff can suggest ways and means to remove the difficulties. Anyhow the internal auditor cannot compel the management to implement suggestions.
Help In Independent Audit:
The purpose of an internal audit is to help an independent review. The external auditor can rely on the internal auditor, and there is no need for cent percent checking. There is a saving of time and money due to internal audit.
New Ideas:
Internal audits aim to seek new ideas relating to procedures, marketing, financing, and other business matters. The internal audit staff can provide fresh insights into various business matters. The viable plans can put in practice for the benefit of the business.