Internal Auditing/ Auditing
Internal Auditing/ Auditing
Internal auditing is a management function that helps the entire business in operating. It’s a function which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity. It also includes risk management and internal control system. It ensures businesses and public sector organizations use resources efficiently and apply process consistently.
Internal auditors assist management with the task by providing a focus on risk management and the implementation of more inflexible internal controls to manage prospective risks and vulnerabilities.Internal Control - As per Explanation to clause [e] of sub-section (5) of section 134 - Financial statement, Board's report, etc. of Companies Act, 2013 - Internal financial controls means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company's policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information; As of today, internal audit undeniably is the backbone of a sound corporate governance system.
Why we need internal auditors?
- When we have increased size and complexity of businesses
- To Enhance compliance requirements
- Focus on risk management - understand risk exposure and internal controls to manage such risks
- Intensive use of information technology
- Need to create greater transparency, establish sound corporate governance
Qualities of an internal auditor.
- Internal auditor should be independent. The independency permits them to render impartial and unbiased judgment essential to the proper conduct of audits
- Internal audit is a management function.
- It contributes in accomplishment of objectives and goals of the organization through ethical and effective governance.
- Internal audit function constitutes a separate component of internal control with the objective of determining whether other internal controls are well designed and properly operated
- Focus is towards improving the internal control structure and promoting better corporate governance
- Risk management and internal control are two sides of the same coin. Risk management focuses on the identification of threats and opportunities, and controls are designed to effectively counter threats and take advantage of opportunities.
Benefits of Internal Audit:
Internal audit have many benefits some of which are discussed below:
- It protects assets and reduce the possibility of fraud as it keeps a check on the internal control of organisation;
- It serves as an early warning system that enables organisation to identify deficiencies and apply remedies on a timely basis;
- It improves efficiency in operations;
- It increases financial reliability and integrity;
- It ensures that organisation complies with laws and statutory regulations; and
- It establishes monitoring procedures;
- It reduces risk of data breaches and various other cybersecurity concerns;
