An audit is a systematic and independent examination of an organization, an evaluation of the effectiveness of a company’s internal controls.
In the broadest sense, an internal audit, often also referred to as management control, includes the plan drawn up by management related to the organization, methods and procedures that are necessary to meet a company’s mission, goals and objectives. Internal controls also serve as the first line of defense against fraud and legal violations, or breaches of regulations and the provisions of contracts and agreements.Internal controls include processes for planning, organizing, directing and controlling operations, as well as systems for measuring, reporting and monitoring performance and actions taken by management and other parties to enhance risk-management and increase the likelihood that established objectives and goals will be achieved.
The internal audit function is the key to ensuring proper monitoring and safeguarding against threats at work within an enterprise. It does so by creating critical opportunities for objective insight into a business’s assets, the work it does, and the controls it has in place. It is an invaluable tool that supports your company’s risk management processes.
Some of the benefits of having a good system of internal audit are:
- Provides target knowledge
- Helps protect assets and reduce the possibility of fraud
- Enhances Efficiency of Operations
- Increases financial reliability and integrity
- Assesses Risks and Protects Assets
- Ensures compliance with laws and statutory regulations
- Surveys Controls
- Establishes monitoring procedures
- Makes the organization process-dependent instead of person-dependent
- Helps top management to discover bugs in their internal control system and to draw up plans and policies for the organization
- Provides objective insight
- Helps shareholders to know the actual position of the organization at various points of time during the year
- Increases accountability within the organization.
According to the Institute of Internal Auditors, “internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.”The internal audit serves many purposes, but its principal tasks include risk assessment, process walk throughs and documentation, control assessment, as well as testing and reporting.