What is Internal Audit and functions of Internal Auditor.

 

Internal Audit

Internal controls, including its corporate governance and accounting processes. These audits ensure compliance with laws and regulations and help to maintain accurate and timely financial reporting and data collection. Internal audits also provide management with the tools necessary to attain operational efficiency by identifying problems and correcting lapses before they are discovered in an external audit.

Functions of Internal Auditor

• Monitoring of Internal Controls – Management should maintain Internal control. An internal Auditor may be appointed to monitor whether Internal control is operating or not? And also to suggest any measures to achieve the improvements.
• Examination of Financial and Operating Information – They may review the means used to measure the financial and other information. The auditor may make inquiries for transaction balances and other specific matters.
• Review of Operating Activities – They have to review the operating activities of an organization, for example, the Examination of purchase, Production, HR dept, and also to check whether these departments are efficient, effective, and economical.
• Review of Compliance with Laws and Regulation – They are required to examine whether the organization is following the laws and regulations.
• Governance – They may check whether an entity is following ethical values and whether they are fair or not. The auditor should always suggest measures to improve the same.
• Risk Management – They should guide the management in improving the risk management system.

• Advantages

  • More Effective Management – It helps a company’s management to manage it more effectively. An internal auditor can identify the shortcomings in the internal controls and operations of the company if any. It gives the management some useful insights that are vital for achieving the company’s goals.
  • Concurrent Review – It gives a unique opportunity of conducting a self-review of the performances beforehand. They do not have to wait until the end of the year to review the company’s performance. It helps them change/improve their processes and correct their mistakes, which better prepares them for the external audit at the end of the year.
  • Improvement in Staff Performance – Due to frequent checks, the staff always remains on the toes due to the fear that the internal auditor may catch their mistakes almost immediately. It ensures an improvement in their efficiency and performance, which becomes a good habit over some time. Moreover, for honest employees who are already on track, it acts as a morale booster.
  • Resource Optimization – It helps the management zero in on the areas where the resources are not being utilized to their full potential. It goes a long way in controlling the costs and expenses of the company. Therefore it is also helpful towards improving the economic position of an organization.
  • Division of Work – Taking resource optimization further, the practice of internal audit keeps a check on and observes the activities of all the departments and all of their employees. It does this by promoting the optimum division of labor across the organization.

  Disadvantages

  • Availability of Qualified Staff – To conduct any type of audit properly (be it internal or external), one needs to have years of experience. So it is often a tough task finding sufficiently qualified personnel in the company who can conduct an internal audit. And you can’t simply hire an inexperienced auditor since that will do more damage to your company than good.
  • Dependence on Accounting Process – As it does in the dictionary, accounting always precedes auditing. The beginning of an internal audit depends upon the completion of accounting. So a delay in the accounting process results in a delay in the audit process as well.
  • Management’s Ignorant Attitude – Management often does not take the findings of internal audits since they are not made available to all. The findings don’t go beyond the management, and thus it depends upon whether it takes the necessary corrective actions or not.

  Conclusion

  Internal Audit is an integral part of an organization. It not only helps in the performance of the employees but also helps the management to have a check on whether or not the organization is complying with the laws and regulations.