Why is an Internal Audit important for your company?
TOPIC POSTED ON 10 Dec, 2020 BY Sibghat & Co Management

Every company needs to go through auditing themselves and looking for discrepancies that may have arisen during the accounting year. But the problem comes when these companies don't have the resources or the personnel to conduct an internal audit.

An internal auditor works as the company's bodyguard. They watch out for any financial lapses, examine its papers, review its documents, and gives their judgment that is free from any influence and one that will protect you from any potential harm in the future when an external audit is conducted.

The process of an Internal Audit

An internal audit is a mechanism through which a company can assess its performance, risk management and ensure whether they are keeping up with corporate governance. Through this analysis, it becomes easier to control and improve a company internally and look out for any fraudulent activity that might be taking place within the organization.

It is not a lengthy process than an external audit if it is done on a timely basis. The only party involved in it are the company appointed auditors, the audit committee, and the company in question.

1. It starts with the internal auditors sampling all the company documents and reviewing its activities for a time period, and look for any discrepancies or asset mismanagement. They also scan the employee performance and check to see whether they are following the rules and regulations that have been set within the organization. Using different assessment tools and methods like interviews, observation, and closely monitoring the operations, they take relevant notes.
2. Next, they combine their findings and prepare a list and send it over to the audit committee to review them. This list is a very comprehensive report that highlights every single detail along with suggestions as to what can be improved or the things that can be done differently.
3. Finally, a decision is taken by the audit committee, and they report back to the company representatives to implement the improvements that have been suggested.

Why you need Internal Audit for your company.

Undergoing an internal audit is essential for a company of any size or sector. It may seem like an irrelevant process, but in reality, that is not the case. We will explore the different reasons why an internal audit is important below:

Internal audit helps to identify where your company is making a loss, where it is wasting resources, and the area which is underperforming. When these checks are implemented and seen through, it can help you make better decisions regarding how and where to invest more.

There are times where certain employees try to steal the company's funds by embezzling funds, skimming off on payments, misuse of company cards, altering payroll transactions, or something as simple as cash theft. It is reported that businesses lose millions of dollars just because of employee theft. When you go for an internal audit and put protection policies in place, you can catch the perpetrators and avoid the flush of funds from your company.

When your company's policies and performance is being checked on a regular basis, it puts the employees and the management in their place. The employees are not being taken advantage of, and the management is encouraged to treat their subordinates with respect. On the other hand, it also deters employees from committing theft or fraud and the administration to be taken lightly. When your internal controls are strong, it ensures that the work environment is favorable for all and proper decorum is being maintained.

Internal auditors are trained to present a picture of the company in a way that leaves room for improvement, if there is any. By law, they are not liable to window dress your company's accounts that could put your company in jeopardy. Hence, their assessment is independent of the influence of any member of management, whether senior or junior, and they directly report to the highest level in the company's hierarchy, i.e., the board of directors.

When regular checks are being made, employees work on performing well to avoid being put under the scanner. This increases productivity, and there is transparency in all the operation that is taking place. Strategic objectives are met, and it helps you implement policies that will bring discipline within the workplace.

Since the internal auditors are reporting directly to the higher management, it boosts the shareholders' confidence. The integrity of your company is increased as well.

Having a sound and regular internal audit helps you evaluate potential risks associated with your company's performance in the form of any gaps there may be or any changes that may have occurred. Often, misuse of the company's assets is also a significant cause in its net worth to go down. Hence, an internal audit protects these assets and ensures fair utilization before an external audit is done.

Ensuring that your company is following all the rules and regulations that have been laid down by the code of corporate governance is exceptionally crucial. It gives you peace of mind and helps you prepare for an external audit. When you avoid costly fines associated with non-compliance, you gain your client's trust and maintain a good reputation for yourself in the market.

1. Identifies areas of waste within the company.

2. Detects fraudulent activity

3. Keeps a check on internal controls

4. Gives a real and an unbiased picture of the company

5. Increases company productivity and boosts the confidence of the shareholders

6. Protects the company's assets and weighs risks

7. Ensures the company is complying with the code of corporate governance

Moving Forward

Zaitox is precisely what your company needs. We are a reliable and efficient Chartered Accountant firm experienced with the regulations set by the IFRS, GAP and ISA. We not only take on large businesses but also look forward to working with startups, SMEs, and a broader spectrum of different companies belonging to various sectors.

By hiring us and keeping a regular internal audit, you prepare your company well for an external audit conducted by the regulatory authorities. By timely working on your company's operations, policies, and weaknesses, you improve at every step. Making your path up the ladder of success any easier one.