An organization's management may want the security of having an independent audit department within the organization, which keeps the accounting and finance practices continuously reviewed. But basically, they set up an internal audit. That is quite different from an audit by regulation. Let's see how it goes. The internal audit takes place within an organization, as per the term. Thus an independent auditor or auditors team, who are not the organization's staff, will review the organization's finance, accounting and operational activities. In reality, it is part of the company's internal control structure.
The hiring of an internal auditor is mandatory for most organizations. Nonetheless, the following groups of companies are required by law to carry out an internal audit according to Rule 13 of the Companies (Accounts) Rules 2014;
Objectives of Internal Audit
1. Proper Control
One of the main goals of an internal audit is to maintain strict oversight of all of an organization's activities. Management needs confirmation of financial record accuracy and the efficiency of the firm's operations. The internal audit helps to assess both.
2. Perfect Accounting System
An internal audit keeps an organization's accounting system under very close scrutiny. This regulates everything from vouchers to statistical precision to the jurisdiction of transactions. All submissions have to be checked against documents and other evidence. It greatly reduces the chances of mistakes or frauds.
3. Review of Business
An internal audit is meant to provide a check on the financial and operational aspects of a company. As the current financial year progresses, the internal audit will point to the company's errors, shortcomings and strengths. This will allow for a continuous analysis, rather than waiting until the year-end.
4. Asset Protection
A valuation and verification of an asset is always present in the internal audit process. Also, the ownership and possession of the asset is physically verified.
And in the case of special transactions such as the sale, purchase or revaluation of the asset, an internal audit also audits the authorization of this. So the properties enjoy full security.
5. Keeps a Check on Errors
The auditor will be able to determine if any errors were made in the financial records during a financial audit. But that happens only at the end of the financial year.
And then the errors are corrected. But in the case of an internal audit, the errors are found as soon as they are made, and immediately corrected.
6. Detection of Fraud
If the company has an internal audit in place, it becomes much easier to detect the fraud. This is because the employees are subject to year-round check.
In fact, an employee is less likely to attempt fraud in the presence of an internal auditor. He will not have any time gap between the occurrence of fraud and its detection to cover it up. This will dissuade employees from committing fraud.
Solved Question for You
Q: Is an internal audit helpful to an independent auditor in any way?
Ans: Certainly, in the presence of an internal auditor, the job of an independent auditor becomes much easier. He can carry out test checks and ultimately choose to use the internal auditor's work for his audit. It saves the business time and money.
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