What does Internal Audit Means?
Internal audits can be defined as the audit conducted by the management of a business entity in order to check and analyze the efficiency of the operation of the business. It is a function of the management. In order to check the health of the finances of the organization internal audits are done.
Why Internal Audit is Needed?
Every organization needs to check its internal control and risks for making the management in better condition and to analyze their position in the competitive world. An internal audit is needed because:
- To check the complexity of the business and its increased capacity or size.
- In order to check the intensive usage of the information technology.
- In order to create great transparency in the management and governance.
- For establishing a corporate governance that is sound and efficient.
- To check enhancing compliance requirements of the organization.
- For focusing on risk management and understanding the risks that the organization is exposed to.
- For taking appropriate control measures for eliminating or managing any risks.
What are the Advantages of Internal Audit?
Internal audits have fair advantages for the organizations and must be done at regular time intervals. These are:
- It helps in accomplishing the objectives and the goals of the organization through efficient governance.
- It helps in determining whether the internal control measures are effective and efficient or not.
- It helps in focusing on improvements in the internal control system.
- It helps to promote a better corporate governance management.
- It helps to identify the risks and opportunities on time and then to design internal controls to effectively counter the risks and take proper advantage of the opportunities.
How Internal Audit is Executed?
The process of internal audit involves the following steps:
- The scope and the objectives of the internal audit are communicated and established to the concerned members of the management.
- The auditor, then review and understand the vast areas of the business by interviewing the members or by reviewing the documents.
- Within the scope of the internal audit the auditor, then describes the key risks faced by the business activities.
- Then the auditor ensures whether the internal controls are ethical and efficiently combating the risks involved in the business or not.
- Then the auditor with the help of risk based samples and tests the management controls to ensure whether they are performing as intended are not.
- Then the auditor reports the issues so that the management can address to the problems if any. Also, they identify any challenges to the business and do negotiate plans for these aspects with the management.
- A final report known as the internal audit report is made by the auditor expressing his or her view.
What are the provisions related to the Internal Audit?
Some provisions regulating the internal audit in India are:
- Section-177 of the Companies Act, 2013: it deals with the formation or constitution of the audit committee.
- Clause 49 of the listing agreement to the Indian stock exchange: it has been formulated to improve the governance in the corporate sector.
What is Internal Audit Report?
Internal auditors at the end of an internal audit analyze and interpret their findings during the audit and then summarize it in a report expressing their views and recommendations and/or any action plans to the management of the organization this report is called as Internal Audit Report.