Internal Audit & Auditor
Internal Audit & Auditor
In the process of internal audit, the internal auditor examines the internal controls of an organization, including its accounting procedures and corporate governance. Performing these audits helps to ensure compliance with laws and regulations, and ensures accurate financial reporting and data collection. An internal audit also provides management with the tools necessary to achieve operational efficiency by identifying problems and correcting them before they are discovered in an external audit.
- A company’s internal auditor offers risk management and evaluates the effectiveness of its internal controls, corporate governance, and accounting processes.
- An internal auditor provides management and the board of directors with a value-add service by identifying and correcting flaws in a process before an external audit is conducted.
Significance of Internal Audit
Internal Audit is technically a cost center within a company, as it does not generate revenues. In any organization, however, a strong internal audit function can be vital to its survival and prosperity. Unlike external auditors, internal auditors consider more than financial statement reporting risk, including the company’s reputation, operational efficiency, strategic growth, impact on the environment, and treatment of its employees.
Companies implement internal controls to ensure the integrity of their financial and accounting information, promote accountability, and prevent fraud. Internal controls include segregation of duties, authorization, documentation requirements, and written processes and procedures. The purpose of an internal audit is to identify any weaknesses in the company’s internal controls.
The internal auditor ensures a company is in compliance with laws and regulations, as well as serving as a safeguard against potential fraud, waste, or abuse. Internal audit provides management with suggestions for improving current processes that aren’t performing as intended, which could include supply-chain management and information technology. As companies need to protect confidential electronic information from outside threats, cybersecurity is becoming increasingly important.
An internal audit may be conducted on a daily, weekly, monthly, or yearly basis. Audits may be conducted more frequently in some departments than others. Manufacturing processes may be audited on a daily basis for quality control, while the human resources department may only be audited once a year. Management may schedule audits so that they have time to gather and prepare the required documents and information, or they may come as a surprise, especially if unethical or illegal activity is suspected.
Internal Audit Process
An internal auditor generally identifies a department, gathers an understanding of the current internal control process, conducts fieldwork testing, follows up with departmental staff about identified issues, assembles a formal audit report, reviews the report with management, and follows up with management and the board of directors as needed. Following are some processes of an Internal Audit:
An internal auditor uses assessment techniques to understand how internal control procedures work and whether employees are following internal control directives. Auditors’ indirect assessment techniques, such as reviewing flowcharts, manuals, departmental control policies, or other existing documentation, are used to avoid disrupting daily workflow. Direct discussion with department staff may be necessary if documented procedures are not being followed.
According to law, auditing fieldwork procedures can include transaction matching, physical inventory count, audit trail calculations, and account reconciliation. An auditor may analyze random data or specific data if he or she believes an internal control process needs to be improved.
A formal internal audit report may include a preliminary or interim report in the form of a memo. The auditor typically includes sensitive or significant results in an interim report to make the board of directors aware of them as soon as possible. The final report summarizes the procedures and techniques used to complete the audit, describes the audit findings; and makes suggestions for improving internal controls and control procedures. Management reviews the formal report and issues recommendations for improvement. Ensure that the new recommendations have been implemented and have improved operating efficiency by following up after a period of time.
Planned activities include defining the scope and objectives of the audit, reviewing guidance relevant to audit (e.g., laws, regulations, industry standards, company policies, and procedures), reviewing the results of previous audits, creating an audit plan, identifying the process owners, and scheduling a kick-off meeting.
Auditing is carried out in the field. This phase involves the audit team executing the audit plan.
As part of this process, the key personnel may be interviewed to confirm they understand the process and controls, relevant documents and artifacts are reviewed, for example, execution of the controls are tested, documentation of the work is provided, and deficiencies and recommendations are identified.
In the reporting phase, internal auditors are responsible for drafting the audit report. Clarity and conciseness will help avoid misinterpretation and encourage the intended audience to actually read and understand the report. Findings should be accompanied by actionable recommendations that improve processes. In order to release an internal audit report, the first step should be to draft the report, review it with management to ensure accuracy, and then distribute it.
Many people overlook and ignore the final stage of a project. In order to address the issues identified, it is critical to follow up on the recommendations. As part of this process, process owners who are responsible for implementing the recommendations should be followed up with, and the Board of Directors should be aware of the company’s overall progress in addressing findings identified by the internal audit. Change is unlikely to occur if an organization does not follow up on the implementation of recommendations.
Audit & Assurance Services of TAXOCRATE
Taxocrate (Pvt) Ltd provides both internal audit and external audit and assurance services to our valued clients through our associate chartered accountants.
The purpose of audits is to provide management and business process owners with assurances and recommendations regarding the functionality of controls within the organization and to ensure that relevant control objectives are being met. In addition, it identifies areas where control systems may be inadequate, identifies the risks associated with such deficiencies, and provides management with advice on how to correct them.
Furthermore, we provide services for the registration of companies, partnership firms, trademarks, copyrights, and filing returns of income tax and sales tax. Please leave any questions you may have about the above-mentioned services in the comment section below.
Provincial Tax Authorities
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