Concept of Internal Audit
An internal audit is where a business is examined by someone working within the company. This audit is a review of operations and records undertaken within a business by specially assigned staff. It is an independent function which evaluates and appraise the functioning of the organization. It is a post-transaction review to evaluate the correctness of records and the effectiveness of operations on a continuous basis in an organization by the paying staffs. They ensure compliance with laws and regulations and help to maintain accurate and timely financial reporting and data collection.
The term ‘internal audit’ has been defined as the independent appraisal of activity within an organization for the review of accounting, financial and other business practices as a protective and constructive arm of management. It provides a systematic and disciplined approach to evaluating and assessing risks management, internal control, and corporate governance. It is a type of control which functions by measuring and evaluating the effectiveness of other types of controls. Internal audit deals primarily with accounting and financial matters, but it may also properly deal with matters of an operating nature.
The work of an internal auditor is more or less the same as that of an external or professional auditor. The function of the internal audit extends beyond the books of accounts and it primarily concentrates on reviewing the operations of the organization. Being the employee of the organization, s/he has to see that there is no waste and inefficiency in the organization. An auditor has to ensure that the organization incurs liabilities in respect of its valid and legitimate activities. S/he has to make efforts to find out the weakness of the internal control and internal check system followed in the organization and suggest necessary improvements. Internal auditors may cover all areas of an organization or specialize based on their skill-sets.
Many large organizations have a system of internal audit within the organization as an integral part of internal control. The role of internal audit is to provide independent assurance that an organization’s risk management, governance, and internal control processes are operating effectively. The internal audit plan should also include a component of the strategic needs of an organization. Internal auditing is a staff function rather than a line function and the internal auditor does not exercise direct authority over other persons in the organization.