INTERNAL AUDIT: CHARACTERISTICS, WHAT IT IS FOR, ADVANTAGES - DUDAS - 2024

The internal audit is responsible for analyzing the activity and evaluate the processes of risk management, control and management of a company. The scope of the internal audit is defined exclusively by management or the board of directors, to whom the auditor directly reports the results obtained.

Its ultimate goal is to add value and optimize the operations of a company. To achieve this, the audit plans, executes, analyzes and evaluates control actions in any department of the organization, all perfectly framed within the current legal regulations.

Internal audit is a consensual procedure. Although management and the auditor prepare the annual plan, information on the details of the audit to be carried out must be communicated in advance to the auditee, in order to reach agreements regarding the scheduled planning.

It is vitally important to follow up on the findings found, the alert points and the proposed suggestions, since not only will the success of the audit depend on this, but the achievement of the goal: to achieve maximum effectiveness in the different operations.

characteristics

Scheduled dates

A structuring of the tentative dates to perform the internal audit must be carried out, in conjunction with the company's management.

They can be carried out at different times of the year, the important thing is that at the end of them all the processes have been carried out.

Professional environment

All internal audits must operate in an environment of professionalism and respect. Findings that are found, whether positive or not, should be discussed with the auditee prior to recording.

Competent auditors

Auditors must have a knowledge of the procedures for auditing and understand the processes being audited. In addition, they must be objective and impartial.

Are planned

An audit is not an impromptu process. This involves a thorough investigation of the entire process to be audited, ranging from reviewing the previous issues you have presented to developing a checklist that will guide the act.

Legal basis

All audits must be based on the law, standards and ethics rules.

Recording and communication of results

A closing meeting with the auditee is essential. At this meeting, the auditor should point out possible weaknesses and areas that need improvement.

All information, including points of disagreement, positive areas, and areas for improvement, should be recorded and communicated to auditees and management.

Furthermore, the auditor is responsible for ensuring that corrective action has been taken to resolve problems found during the audit.

What is it for?

Internal audit serves a variety of purposes within the organization, but its main objectives include:

- Help protect company assets by valuing and verifying assets.

- Evaluate the financial statements prepared by the accounting staff, in order to verify the effectiveness of the administrative system, control errors and detect possible fraud.

- Collaborate with management in identifying and prioritizing those areas or processes that require greater attention, due to being at risk.

- Carry out tests on the internal control instruments, in order to identify procedural gaps in them.

- Promote the efficient and effective use of company resources.

- Identify possible risk situations, concerns or future opportunities, providing management with professional advice on possible actions in each case.

- Propose suggestions, new ideas or carry out a special investigation on the internal accounts of the company.

- Determine the responsibility of the employees before any anomalous situation detected in the audit.

- Support the management of the external auditor through the audit report, which must be carried out under the established parameters, rules and regulations.

- Guarantee compliance with laws and regulations, both internal and national and international.

Advantage

Remedy deficiencies in a timely manner

One of its great advantages is that it enables deficiencies to be identified and remedied in a timely manner, before they are detected by external, regulatory or compliance audits.

You can ask for it whenever you want

Despite the existence of an audit plan, management can request a general internal audit or a specific department at any time.

Guarantee updated accounting data

Because financial information is regularly requested for evaluation and analysis, accounting staff must work hard to keep these records up to date.

Eliminate possibility of internal fraud

The organization's accounts are frequently audited, which minimizes the possibility of internal fraud.

Evaluate operating and control procedures

Considering the information, decisions will be made regarding increasing the effectiveness and efficiency of these procedures.

Review company policies

As the audit is a continuous and programmed process, it makes it possible to monitor the new policies designed, in order to evaluate possible restructuring of the same.

Evaluate the organization chart of the company

The report produced by the internal audit will give the opportunity, if necessary, to make changes in the structural organization chart of the company, taking into consideration that it is of vital importance that all personnel work according to excellence.

Disadvantages

Possibility of not detecting a fraud

The audit is based on the evaluation of the information provided by management. It becomes difficult for the auditor to verify each of the accounting data.

If these data are altered, the final report of the internal audit will not be attached to reality, and any fraud committed may be ignored.

It is not possible to standardize it

Each company has its own parameters to be evaluated within the audit. The aspects of how to measure and based on what to do it, its productivity or effectiveness, will be the foundation to structure the objectives and goals that are pursued with the internal audit of the company.

Subjectivity

The internal audit may not reveal true and reliable information about the company. This would be associated with several factors.

If staff feel evaluated, they can hide failures they have incurred, which, however small, would alter the results of the final report.

Another aspect is that the people in charge of carrying out the internal audit could use it as a means of power, exercising it towards those in charge of issuing the information.

On the other hand, if the information provided is correct but is not interpreted objectively, it will lose all validity.

The final report is for internal use only

For the data provided by the internal audit to be valid before shareholders, banks and other entities, the company must carry out an external audit, which implies additional costs as it has to hire auditors to carry it out.

References

1. Wikipedia, the free encyclopedia (2018). Internal audit. Taken from: en.wikipedia.org.
2. Institute of Internal Auditors Australia (2018). What is internal audit? Taken from: iia.org.au.
3. ISO Update (2018). Characteristics of an Excellent Internal Audit Process. Taken from: isoupdate.com.
4. Institute of internal auditors (2018). What is internal audit? Taken from: iia.org.uk.
5. Raymond J. Broek (2018). The benefits of the internal audit. Withum Audit tax advisory. Taken from: withum.com.
6. Parikh Vinish (2011). Advantages and Disadvantages of Internal Audits. Let's learn finance. Taken from: letslearnfinance.com.
7. Business knowledge source (2010). Pros and cons of internal audits. Taken from: bussinessknowledgesource.com.