Internal audits are an essential element in any business. Audits can prove to be the difference between a successful organization and one that is on the path of failure. While some people often make an incorrect assumption about internal audits, they are not necessarily designed to catch employees while they are doing something wrong; instead, they serve as preventative measures meant to change bad habits or policies before serious errors occur.
An internal audit procedure is a document which talks about the process of an audit before, during, and after. It also talks about who is responsible for an audit. And it talks about what the purpose and objectives are for an audit. If you take time to make your internal audit procedure detailed and thoughtfully written, then it can help you achieve better audits.
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Why Internal Audits Are Important
Internal audits are important because they allow companies to maintain a balance between productivity and security. A company will save money, for instance, if it catches an employee who has been abusing his or her privileges by viewing inappropriate content on the job. This reduces the risk of blackmail or bribery, which ultimately means that the organization is more likely to retain valued employees.
Generally speaking, there are two types of internal audits: periodic reviews that assess an organization's vulnerability to fraud or criminal acts; and ongoing evaluations that review business practices in order to ensure that they fall within industry standards.
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Internal audit process steps
The internal audit process has six steps. The first step is initiation, which involves identifying the motivation behind the audit and the result that you want to achieve. The second step is planning , where you identify who will be involved in conducting or overseeing the audit, as well as what tools will be necessary.
Example of Internal Audit Steps: 1st-Planning 2nd-Execution 3rd-Analysing 4th-Reporting 5th-Follow Up 6th-Recognizing
Once this has been accomplished, it's time to execute. This involves gathering data and interviewing employees so that their responses can later be analyzed for irregularities, if any exist. After developing a report based on these findings, you'll need to present your findings to the appropriate authorities. Lastly, you must have a follow-up process in place so that you can monitor the analyzed company policies or guidelines on an ongoing basis.
Procedure of Internal Audit
The scope of internal audit in any organisation is very wide, and to handle the task in an efficient manner, the Internal Audit Department needs to plan a procedure that should include the following :
1. Whatever has to be investigated must be clearly defined.
2.After this, the policy, technique, and the procedure of control needs to be formulated.
3. The next step would be to select some transactions of the subject being examined. Care should be taken that the transactions selected are representative of the whole.
4.The transactions selected should be thoroughly examined from the beginning to the end. The examination should include the examination of documents and vouchers, confirmation from the employees of the organisation and third parties, and also the nature of the relationships between the parties.
5. The errors examined should be classified into major errors and other errors. The major errors should be examined in detail and their causes, effects and the people responsible for them should be traced.
6. In the end a report of the examination should be submitted to the management. The report should not be too long since busy managers do not have enough time to read lengthy reports, but this does not mean that the reports should be so short that they become meaningless.
The report should be written in such a manner that provides the management complete information on the deficiencies of the system so that the same can be removed by the latter.