Internal Audit

Objectives of Internal Audit: A general overview

Introduction  

All the organizations want safety of their organizations for which they appoint an internal audit team as an integral part of their internal control mechanism. The role of internal audit is to keep a constant check on the accounting and finance practices of the organization. The objectives of an internal audit are significantly different from that of a statutory auditor. Internal audit goes on throughout the year and scope of work is pervasive. This piece of writing discusses the meaning and objectives of internal audit.    

What is meant by internal audit?

Internal audit, as the name suggests, occurs within the organisation. Such audit is conducted by an independent team of auditors who are actually employees of the organisation. The task of the internal audit team is to review the financing, accounting and operations of the organisation. The internal audit team forms part of the internal control system of the organisation. The law makes it mandatory for certain companies to appoint an internal audit team. Following are a few examples where the law makes it mandate to compulsorily have internal audit teams. These organisations include every listed company on the stock exchange, every unlisted company satisfying certain parameters and similarly every private company satisfying certain parameters.

What are the objectives of internal audit?

Following are some of the objectives of internal audit:

• Maintaining stringent control   

One of the primary objectives of internal audit is to maintain stringent control over all the activities of an organisation. The management also wants an assurance with respect to the accuracy and authenticity of the financial records and ensure efficiency in the operations of the organisation. An internal audit helps to check both the options by keeping stringent control over the activities of the organisation.

• Check the accounting system of the organisation  

Keeping a close check on the accounting system of an organisation also falls among one of the objectives of internal audit. An internal audit keeps a close look and check on the accounting system of an organisation where it checks everything from vouchers, to mathematical accuracy to the authority of transactions etc. Proper and systematic verification of all the entries in the documents is done.  Since, the documents go through such scrutiny, the chances of mistakes or frauds are reduced to a great extent.  

• Checks the financial and operational aspects of the business

An important component of the objectives of the internal audit is to keep a check on the financial and operational aspects of the business. During the internal audit, the mistakes related to the business, it weak points and strengths come to the fore for the business to take corrective measures. This process requires continuous reviewing of the business operations throughout the year instead of focussing at the year end.

• Protection of the assets of the organisation 

Valuation and verification of assets of the organisation also forms one of the objectives of internal audit. The internal auditor physically checks and verifies the possession and ownership of an asset.  A business organisation enters into a number of transactions which includes buying and selling of assets and in special transactions like sale, purchase of property or revaluation of an asset etc. Such transactions are not executed unless internal audit team checks the particulars of the property and conducts due diligence of the property. This ensures that the assets of an organisation enjoy complete protection.

• Keeping a check on the financial errors

A financial audit^[1] reveals the mistakes in the financial records of the organisation. But the drawback is that it takes only at the end of a financial year. But if such a task continues, it can cause huge losses to the organisation. However, if because of internal audit, the mistakes appear at the beginning of the year, it becomes much easier to clean the mess as the mistakes are spotted as soon as they are made and consequent corrective measures are taken to see to it that such mistakes are not repeated again.

• Chances of detection of fraud increase 

An internal audit also increases the scope of detection. The task of internal audit continues throughout the year and is not limited to a particular period of the year. If the process of internal audit continues throughout the year, scrutiny of facts keep taking place all year round which increases the chances of detecting fraud at its genesis and prevents the organisation from suffering huge losses inviting wrath of the enforcement authorities.

Internal audit not only helps to find the culprit who has committed the fraud but continuous scrutiny helps to keep a tab on the activities of the employees throughout the year.  

Conclusion 

The above discussion of the internal audit delineates the objectives of internal audit. However, it actually points out the importance of internal audit team for any organisation. It is important because it checks the errors, mistakes, incidents of frauds throughout the year and not just at the end of the financial year which protects the organisation from heavy losses and penalties. It checks whether the assets of the organisation are intact and keeps a tab on the activities of the employees throughout the year.

Read our Article:What is the Difference between Internal and External Audit?