An audit is a procedure in which a professional examines a company's records, primarily financial records, to find specific information. Financial audits are the most common type of audit. An auditor reviews a company's financial statements in these audits. The goal of such audits is to find any inaccuracies in the financial statements. However, depending on the sort of audit and the rules that govern it, this goal may alter.
Financial audits are essential for businesses. Previous conflicts and the agency problem have necessitated such audits. External audits are usually referred to as audits or financial audits. An independent third party examines a company's financial statements in this type of audit. External audits result in an audit report that details the auditors' assessment of the client's financial statements.
Internal audits are also possible. Internal audits are distinct from external audits in several ways. Similarly, internal audit goals differ from those of external audits. It's critical to understand what an internal audit is before you can grasp how these objectives differ.
What is Internal Auditing?
Internal auditing is the process of evaluating a company's internal controls by internal auditors. Internal auditing is primarily concerned with identifying flaws in a company's internal control systems, including other areas. Corporate governance, which outlines how corporations should be controlled and directed, necessitates the use of internal auditors.
Internal audits aim to guarantee that a company follows all applicable rules and regulations. It also aids in ensuring that the company's financial records are correct and provide a balanced picture. Furthermore, internal auditors are in charge of risk management in a corporation.
Internal auditors have a wide range of tasks in every organization. Internal auditors, unlike external auditors, are employees of the company. Internal auditors may not always be independent of the company's management, which limits their reach. On the other hand, internal auditors may add a lot of value to any organization if they are objective in their work.
What are the Objectives of Internal Auditing?
While there are some guidelines for conducting internal audits, the breadth varies for every firm. Every organization can state what it expects from its internal audit department. As a result, the goals of an internal audit may vary from one firm to the next.
However, several internal audit objectives are shared by all businesses. The following are a few of them.
1. Internal Controls Evaluation
Internal auditors are primarily responsible for evaluating a company's financial controls. These controls have to do with how a business works and manages its risks. Internal audits look at operational efficiency, financial compliance, and security, among other things. They can also recommend several steps based on their findings to ensure that no more breaches occur.
2. Keeping an Eye on Regulatory Compliance
Internal auditors check a company's regulatory compliance as part of risk management. Internal auditors are not in charge of guaranteeing compliance, although they can spot any flaws. They will be able to report it to management once they have done so. This goal is also in line with the purpose of external audits.
3. Asset Verification and Protection
Internal auditors also check the assets of a corporation. It is a component of their internal control evaluation. They also make sure that adequate maintenance procedures are in place to ensure that these assets are protected. Internal auditors defend the company's assets by doing so. Internal auditors also keep an eye on asset acquisitions and dispositions to guarantee accurate value.
4. Keeping Financial Records Accurate
Internal auditors verify the accuracy of financial accounts prepared by a company's management. This goal is comparable to that of external auditors. Internal auditors usually follow the same procedures as external auditors. They do, however, disclose any misstatements to management, as previously stated. This objective may not be the main priority for internal auditors in most circumstances.
5. Making Observations and Keeping Track of Results
Internal auditors do not serve on a company's executive committee. Instead, their role is to observe numerous processes to discover problems. They hope to find any weaknesses in the company's internal controls by doing so. When they find out such issues, they make a note of it. They eventually disclose these flaws to the appropriate authorities, who take corrective action.
6. Risk Reduction
Internal auditors can play an essential role in risk mitigation. It is a type of internal control used by businesses. Internal auditors keep an eye on current risks and look for potential ones that the organization might face. After they've analyzed them, they'll be able to recommend any mitigation measures the organization can take.
Conclusion
Internal auditing is a procedure used by businesses to ensure that internal controls are practical and efficient. Internal audits, on the other hand, have different goals. Internal controls must be evaluated, regulatory compliance must be monitored, and assets must be verified and protected. It also entails monitoring the correctness of financial records, conducting observations and recording conclusions, and risk mitigation.