Internal Audit is a separate function within an organization that reviews and assesses its activities. Its goal is to help improve the organization by evaluating how well it manages risks, controls, and processes. This independent review supports the organization in achieving its goals and improving its operations.
What Internal Audit Does
Scope of Internal Audit
Internal Audit focuses on checking if the organization’s internal controls are well-designed and working properly. According to AAS-6, internal controls are policies and procedures that help the organization achieve its goals, ensure accurate accounting, prepare financial information on time, protect assets, and detect fraud and errors. The scope and objectives of internal audit can differ based on the organization’s size, structure, and needs. Typically, internal audit covers:
Review of Accounting Systems and Controls: Ensures that the accounting system and related controls are effective and suggests improvements if needed.
Examination of Financial and Operating Information: Checks how financial and operational information is identified, measured, classified, and reported, including detailed tests of transactions.
Assessment of Efficiency and Effectiveness: Reviews how well the organization operates and manages its financial controls, which helps external auditors assess the reliability of financial records.
Physical Verification: Examines and verifies the actual existence and condition of the organization’s physical assets.List item
Objective of Internal Audit
Check Accuracy and Authenticity: Ensure that financial, accounting, and statistical records are accurate and genuine. Follow Accounting Policies: Verify that accepted accounting practices are followed when preparing financial accounts.
Proper Asset Management: Make sure that assets are bought or sold with proper authorization and that access to assets is restricted to authorized individuals and times.
Legitimate Liabilities: Confirm that any liabilities are related to legitimate activities of the organization.
Effective Internal Checks: Ensure that the internal checks system is effective and cost-efficient.
Prevent and Detect Issues: Prevent and detect fraud and errors.
Review Internal Controls: Regularly review the internal control system and report any issues or weaknesses to the appropriate authorities for timely corrective action.
