Internal Audit

4 Points You Must Know About Internal Audit

1.  Management Support System :

Internal audit supports the management by mitigating the business risk. It assures the management that the policies and procedures are actually being followed or not. It helps in finding out the errors and the prevention of fraud. Financial and legal compliance is of utmost importance for any business. Internal audit helps in this regard so that management can focus on other areas such as sales, marketing etc., more effectively.

2. Inhouse vs Independent :

Internal audits can be done by employees also. It can be done by qualified outside professionals too. It is better to get it done by an independent professional. This way, the internal audit includes the audit of the management, also resulting in a better outcome.

3.  Periodicity of Report:

The internal auditor can submit the report on a monthly or quarterly basis. It can be some other periodicity also depending upon the requirement of the business.

4. Compliance of Internal Audit Report:

The whole internal audit exercise will be useless if the compliance of the report is not done.

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FAQ`s Regarding Internal Audit

Internal audit is an independent evaluation and assurance on the effectiveness of management’s internal control and risk management processes. It includes checking compliances with internal policies and external rules and regulations.

  • Effective and Easy Management

One of the most important benefits of an internal audit is that it helps in managing the organisation more effectively and quickly.

  • Continuous Review

The process of an internal audit gives a unique opportunity to carry on a review of the performances in the current year itself in the organisation.

  • Improvement of Staff Performance

There is fear among the organisation’s staff that their mistakes might get caught by the internal auditor. Hence, they remain active and alert.

  • Efficient Use of Resources

Another benefit is that internal audit can be a tool to use the resources efficiently and in an optimised manner.

  • Allocation of Work

Internal audit helps promote the division of work in a manner beneficial to the organisation.

The scope of the Internal audit are as follows:

1. Review of Reliability and Integrity of Information:

The Internal Auditor reviews the financial and operational information to check its reliability and integrity. He should also look into the effectiveness of the methods and means to identify, measure, classify and report such information.

2. Policies and Procedures Compliance:

The internal auditor should safeguard the working and effectiveness of the various systems and procedures in the organisation, as it affects the overall working of the business organisation.

3.Asset Safeguarding:

The internal auditor should understand the existing system for safeguarding the assets and should verify the existence of such assets if necessary.

4. Optimum Use of Resources:

The internal auditor should ensure that the organisation’s resources are being used most efficiently and effectively.

5. Achievement of the Established Objectives and Goals:

The internal auditor should check that the results of the operations are in no way inconsistent with the decided goals and objectives of the organisation.

External Audit includes Internal Interim Audit, which is done to reduce work pressure during the finalisation of external audit.

So for a company having a year-end in March, the auditor may commence work in December to reduce work pressure at year-end. It should be noted that an Interim audit is different from a half-yearly review, which is a separate engagement.

Internal audit is an independent evaluation and assurance on the effectiveness of management’s internal control and risk management processes. It includes checking compliances with internal policies and external rules and regulations.

1. Effective Control

One of the main objectives of an internal audit is to maintain strict control over all the activities of an organisation. Internal audit helps to establish the authenticity of the financial records and the efficiency of the firm’s operations. An internal audit helps establish both.

2. Perfection in Accounting System

An internal audit keeps a trail on the accounting system of an organisation. It checks everything from starting to end, like the vouchers, to the authority of transactions to mathematical accuracy. Every entry is verified, so the chances of mistakes or fraud are reduced.

3. Review of Business

Internal audit helps to keep a check on the financial and operational aspects of a business. It helps to find out the business’s weak and strong points without waiting until the year-end review.

4. Safeguarding of Assets

This process consists of the Valuation and Verification of an asset. Physical Verification of ownership and possession of the asset is also taken care of.

And in specific transactions like sale, purchase, revaluation of an asset, the authorisation of purchase and sale is also audited in an internal audit. So the assets are in complete protection.

5. Errors Minimisation

The errors are detected and, if possible, corrected at the year-end in the case of statutory audit. However, the errors are found and corrected immediately in the case of an internal audit.

6. Fraud detection

Internal audit helps to detect fraud in a much easier way as there is a continuous check on the employees.

As there is no time gap between fraud and its detection, the employees have no time to cover it. Hence, an employee is less likely to attempt fraud in the presence of an internal auditor.

Internal Check is a system wherein the work and responsibilities are divided and organised in such a way that the work of one employee is automatically checked by another employee.

Internal Audit is an independent review of the ongoing critical examination of the financial and operational activities of the concern by an internal auditor.