Why Shouldn’t You Underestimate the Importance of Internal Audit?

Internal Audit

Checking the internal control system is the most frequent task. Several types can be distinguished here: financial audit, operational audit, compliance audit (compliance audit), audit of information technology (information systems), audit in the field of environmental protection.

A financial audit is an audit of the accounting and financial reporting control system. It aims to ensure the integrity of the company’s financial statements.

An operational audit is an audit of a company’s business processes, such as procurement, production, logistics, marketing, sales, etc.

Compliance audit – checking the company’s compliance with the requirements of the current legislation, as well as internal regulatory documents – policies, procedures, regulations, standards, etc.

Information systems audit – checking the safety and security of the company’s information systems and the effectiveness of their use.

Audit in the field of environmental protection is a relatively new type, the need for which is caused by the tightening of legislation in this area.

While fraud detection is generally not a goal of internal audit, a recent study by the Association of Certified Fraud Examiners found that, on average, about one-quarter of fraudulent frauds come from internal audit activities.

Surveys show that about 80 percent of foreign companies involve internal auditors in investigating fraud.

Internal audit can be involved in a wide variety of special projects, for example, such as reengineering various systems and processes, installing a new information system, conducting a self-assessment of control, mergers, and acquisitions, etc.

In many cases, an internal audit performs the tasks of confirming the reliability of financial and accounting statements and the correctness of the calculation and payment of taxes. That is, it is an “internal” continuation of the external audit.

Three characteristic features can be distinguished that leave an imprint on the general development of the profession.

First, the management of companies in many cases does not realize the importance of internal audit and the breadth of tasks that it can solve and perceives internal audit as the modern name of a well-known audit.

Secondly, an internal audit is often a continuation or addition to an external audit since it is perceived as an audit of financial statements. This leads not only to ineffective use of its potential but also to direct loss of resources spent on duplicating the work of internal and external auditors.

Thirdly, in companies, internal audit must constantly prove to managers and employees of the company its necessity and usefulness.

Unfortunately, employees do not always realize that the internal audit consulting service is not called upon to control performers but to identify weaknesses and deficiencies in systems, processes, procedures and develop recommendations that help to eliminate them.

Misunderstanding of the role of internal audit, both on the part of the owners and management of companies, and in some cases on the part of the internal auditors themselves, results in disappointment.

The perception of internal auditors as corporate police officers, prosecutors, etc. complicates their work and does not produce the expected results.

But despite all the difficulties, internal auditing consulting services are developing rather quickly and have good prospects.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.

Posted by:

CA Aman Aggarwal

AKGVG & Associates

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