Auditing – a dreaded word across businesses, is an important process for every organization. Auditing is conducted to determine the quality of financial statements. It is also used to analyze and form an opinion on business operations, and to attract potential investors for investment. There are two main types of audit – external audit and internal audit.
What is an internal audit?
An Internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It is a consultative and proactive approach towards assessing the operations and internal controls of a company. It is also done for recommending improvements for the same. The role of internal audit is to provide independent assurance regarding organization’s risk management and governance. They should also ensure that internal control processes are operating effectively. There are different types of internal audits depending on the function being audited. It includes information system audit, compliance audit, environmental audit, controls audit, operational audit, performance audit, and specialized audit. Moreover, the qualities of a successful internal auditor are visionary, effective communicator, team work, relationship builder, diversity,
On the contrary, an external audit is a type of audit where the financial records and statements are examined to form a perspective on the financial performance of the company
Strengthening internal audit
Auditors need to be able to understand the client’s business and industry. This also requires the ability to quickly frame a picture of the client’s business. It also includes the organization and key attributes within it. Moreover, a good auditor is able to sort out connections and linkages within the organization to focus the audit approach. Moreover, it is extremely crucial to have the best internal audit structure in your company. A strong internal audit structure will also ensure to improve your business processes. Furthermore, it should make you ready for the competition in the industry. The internal audit best practices that can ensure the best internal audit structure are:
Positive and committed internal audit team
Generally, companies and employees are wary of the internal audit team. Therefore, they are known for pinpointing errors and mistakes in all processes and operations. That is also a part of their job. However, they must also appreciate the company or department when it is doing well. They should also appreciate when processes are well-aligned with the objectives. Overall, they must remain committed to the company and its growth. They should not just focus on the negative aspects of the company.
A strong and clear reporting structure
It is extremely important to define a clear reporting structure for the internal audit team for transparency. Additionally, any conflict in those parts may affect the communication and performance of the internal audit function.
Focus on high-risk operations
Instead of auditing numerous functions and operations, you should focus on more risky functions of the company. Such quality internal audits of high-risk operations will benefit the company more, leading to more effective business processes.
Engage in the strategic planning process
The internal audit system ensures auditing of risk management, internal control system, and operational activities. However, it must also include auditing the strategic planning process. Strategic planning falls under governance and oversight function. Therefore, the internal audit team must ensure to include it in its scope of work. The internal audit process must audit the assumptions taken to do the planning. They should also check business models used, and data based on which strategic plan is prepared.
Adopt data analytics
Adopting data analytics in the internal audit process can bring a huge difference to the function. The effectiveness of the internal audit of large amounts of clean, structured data generated because of data analytics improves by a huge margin. Data analytics enables internal auditors to extract useful information, identify and analyze patterns. Moreover, it detects any inconsistencies in the data. With this, it becomes easier to identify risks, generate more insights from information. Thus you can arrive at the results faster.
Add value to business operations
The internal audit team must ensure to align the audit procedure with the organizational goals and objectives. Therefore, the direction remains right always. They must also identify the missing opportunities of the functions and departments based on the goals. Hence they can contribute towards giving the right direction to functional efforts and hence, achieving overall operational excellence. Furthermore, the internal audit team must work to identify the wrong, make it right, and add value to it.
With all these best practices for internal audit in use, the chances of internal audit failure reduce. Despite these internal audit best practices, the internal auditing team faces a myriad of challenges. Therefore, you must overcome for better results. Some of these challenges include different expectations of multiple stakeholders of the company and expectations of enhanced value. One solution for such challenges is for the internal audit team to develop their skills. Another solution is to use internal audit consulting services provided by many internal audit-consulting firms. Such internal audit companies can provide specialized skills in IT, analytics, governance, security, fraud, and value-generating analysis.
Our internal audit services ensure the highest standards for your business operations
Our internal audit services
We provide internal audit services to various industry sector clients. It varies from Corporate set ups to Multinational organizations to make their business processes consistent, efficient, and effective. Through our internal auditing services, we provide an unbiased opinion on your operations, create a plan to eliminate or reduce the risks. Hence, generate operational excellence for you. We keep you compliant with all statutory requirements, safeguard your assets from various types of risks. Moreover, we make your business operations effective, efficient and in compliant with the relevant laws and regulatory requirements.
Yes, internal audit and internal control are different. Internal control is the first line of defense for a company. It is a system comprising of policies, procedures, and measures implemented in the company to check if it can ease off the risks and meet the objectives. Operations and administrations department are responsible to conduct on going checks for a system of internal control, diminish the risks, and achieve operational effectiveness and efficiency.
On the other hand, internal audit is a function, which acts as the third line of defense for a company to evaluate the first (operational management functions) and second (risk and compliance functions) lines of defense. This process does not include the identification of risks a company faces and the recommendation of controls to implement to manage those risks. However, it just understands the risks and assesses the effectiveness of the internal control system.
The time taken for internal audit is not a fixed duration. It depends on the size of the company and the business domain of its operations. Based on our initial discussions with the client, we specify the duration of the internal audit work.
External audits are conducted as a statutory process. It is mandated by regulated, bankers, or shareholders while internal audit are randomly conducted any time of the year. Moreover, external audits help to build a positive public image of the company, internal audits help to identify errors in the process, fraud situations, and instances of damage to the company’s reputation.
NR Doshi & Partners is a leading audit and accounting firm with more than 35 years of experience in the industry. We offer a range of services includes HR outsourcing, accounting and finance, various types of consulting and advisory services, business feasibility studies, company formation, and various types of auditing. Our team of expert professionals and consultants believe in a detailed study of the client, development of customized solutions, smooth execution, and flawless services.
Our strong internal audit services for a greater impact on your business