Internal Audit

Internal Audit Service involves a methodical and disciplined approach to appraise and improve the effectiveness of governance processes, internal control and risk management in an organisation. It is an independent consulting activity which is carried out to add value to an organisation’s operations. The primary objective of an internal audit is to ensure that an organisation complies with all the statutory laws and regulations governing it.

Internal audits may be conducted on a daily, weekly, monthly or an annual basis, depending on the department. For example, a manufacturing process may be audited daily to ensure quality control.

What are the responsibilities of an Internal Auditor?

The first and foremost responsibility of an independent internal auditor is to provide the management with assurance that the internal controls, governance procedures and risk management strategies of the organisation are operating effectively. The functions of an internal auditor include analysing, investigating, supervising and evaluating the existing risks and controls in an organisation and ensuring compliance with procedures, policies and laws.

What are the objectives of Internal Audit?

Internal audit impacts an organisation on two distinct levels – the process level and the enterprise level. The comprehensive purpose of internal auditing is to assist the management in performing their responsibilities effectively. Various other objectives can be summarised as follows:

• Help management to achieve the business goals and strengthen the internal controls by bridging any gaps or discrepancies observed during the course of the audit
• Assess the risks involved at all levels
• Carry out a detailed investigation of the internal controls being relied upon
• Facilitate early detection of errors and frauds
• Verify the accuracy, correctness and authenticity of the statistical records and financial statements presented to the management

Methodology used in Internal Audit

1. Scope of Internal Audit

The scope of internal audit extends beyond mere accounting controls and includes all the administrative controls and risk assessment procedures as well. The internal auditor is concerned with evaluating every policy that may have a bearing on the assertions underlying the financial statements. Some of the major audit areas include information technology, maintenance of books of accounts, procurement and purchasing, human resource, MIS, business reporting, and more.

2. Risk Assessment Matrix

A risk assessment matrix is a project management tool which can allow an organisation to view the possible risks evaluated in terms of their probability or likelihood and the severity of the consequences. It is based on risk assessment forms which involve gathering risk data and ascertaining the impact levels of the risk.

3. Risk-Based Internal Audit Plan

Depending on the nature of the risk and its category, a detailed internal audit plan is then drafted in collaboration with the management. The riskiest areas are given the top priority. Broad areas covered include the following:

• Procurement of goods/services
• Finance
• Inventory
• Fixed Assets
• Logistics
• Statutory Compliances
• Revenue
• Information Technology Infrastructure

4. Execution of Approved Internal Audit Plan

Once the audit plan gets approved, the internal auditor can begin with fieldwork by performing a walk-through or questioning the staff, making enquiries, etc. The management is given regular updates regarding the status of the internal audit.

5. Submission of Final Reports

Once the execution stage is done with, all the observations can be recorded in a report. Next, a risk rating is allotted to every observation made in the draft report and discussed with the management. Any concerns, issues, and deviations can be highlighted, and steps to bridge the gaps can be discussed.

6. Follow-up

The follow-up report is presented to the management at the last stage commenting on the status of the observations and their closure. In case some observations have not been acted upon, it is brought to the notice of the management to decide the next course of action

Musthafa Abdul Hameed Auditing of Accounts is a reputed CA firm having its presence in the UAE and India. We provide excellent accounting, auditing and taxation services to clients globally. We pride in our team of highly-qualified professionals who can provide the best financial solutions for your organisation.

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