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A Brief About How Internal Audits Work & Their Purpose?

Every business stays compliant with the state and federal laws for smooth operation. Companies often have to shut operations because they fail to adhere to applicable government norms and regulations. Often, government officers tend to check the compliance level of businesses. Anything can come under the radar of compliance officers, from accounting practices to operations. For the same reason, businesses prefer running checks before the government officers arrive. To do so, they depend on internal audits. Apart from compliance checks, internal audits are also used to measure the operational efficiency of the organisation. Read on to know how internal audit services work and their purpose.

Understanding the concept of internal audits

Internal audits are helpful for any type of business. It is because every business is bound by compliance laws and cannot avoid them. The management team within an organisation has to know about the organisation’s compliance status. They can learn about it after conducting internal audits. The management team also needs to know whether or not the company policies are applied. Therefore, internal audits are necessary to ensure everything is in the right place within a company. With internal audits, the management team can ensure that the company can survive in this competitive sphere. In short, the activities performed via internal audits are as follows:

  • All the risks within an organisation are measured via an internal audit.
  • The operational efficiency and competitiveness can be measured through an internal audit.
  • The management team checks the company’s compliance with local and state laws via internal audits.
  • Internal audits are also responsible for giving reassurances to company owners or stakeholders.
  • Internal audits also focus on measuring the effectiveness of the company’s accounting processes.

As one can see, internal audits collect info on how the company is performing and what are areas to improve. Internal audits can be performed by in-house auditors or a third party. Many companies outsource internal audits to a reliable third party for a fresh perspective. Responsible companies conduct internal audits at frequent intervals to know their compliance and performance status. The management can ensure that every department is working properly with an internal audit. A company can also perform internal audits for only compliance checks. Many companies perform only IT check via an internal audit. Let us understand internal audit via an example.

Consider there is a company that deals in education software. The board of directors suspects a discrepancy within the financial statements. The board of directors ask the management team to conduct an internal audit and find the truth. The management team will conduct an internal audit and cross-check the accounting books. After an audit, the team discovers that there was a discrepancy in the financial statements. Since this was an internal audit, the company has a chance to modify the reports and improve its accounting processes. It is much better to improve the mistakes than to get caught by a compliance officer.

Functions of internal audits

The main functions of internal audits are as follows:

  • Internal audits begin with monitoring internal controls and administration within the company.
  • The governance within the company is assessed via the auditors.
  • Previous risks of the organisation are determined before an internal audit.
  • Auditors check whether previous organisational risks are still existing or not. Auditors also find new corporate risks that can hamper business continuity.
  • Auditors review all the internal activities within the organisation.
  • Based on the above processes, an audit report is prepared and presented to owners and stakeholders.
  • A strategy is formed to remove the organisational risks and malpractices within the organisation. The employees within the company are told the right way of conducting daily operations.

In-house vs outsourced auditing

As discussed above, internal audit services are essential for all businesses. However, internal audits for big organisations can be time-consuming. If a company uses internal staff members for audits, they might not get time to focus on core activities. Also, internal audits are conducted at frequent intervals, which can complicate internal affairs. To save time and internal resources, it is better to outsource internal audits to a reliable, professional services firm. Rely on internal audit services to boost operational efficiency!

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