An Introduction to Internal Auditing


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The sole purpose of internal auditing is to make sure that an organization reaches the goals it had specified in its strategy. The process of internal auditing includes the usage of a systematic methodology to examine the various business processes, activities and practices. The mere purpose of an internal audit is to highlight and specify organizational problems and then create a report to present solutions to these problems.

Internal auditing itself is a vast process that includes a number of sub-processes that are used to:

  • Evaluate the usefulness of company operations and the accuracy of financial reporting within an organization
  • Spot fraudulent activities
  • Secure company assets
  • Make sure that all the financial policies of the company are in line with the rules and regulations of the region the company is functioning in

Internal auditors are not responsible for taking any legal action against an activity. They are only responsible to report it to the board of directors and suggest ways of solving the problem. Also, internal auditing is not the same as financial and cost accounting. Therefore, it does not deal with giving suggestions and recommendations regarding the financial aspect of the company. Internal auditing is only responsible for reporting activities and checking the accuracy of documents created by the financial departments.

Another major responsibility of an internal auditing department is to maintain the transparency of records and keep the board of directors aware of any issues that might be there. Internal auditors are responsible for transferring these records to external auditors and are responsible if any fraudulent activity is detected.

Internal auditing departments are rare in partnership firms. They are usually present in Joint Stock Companies where the movement of assets and the involvement of financial activities are on a larger scale. Today, an internal auditing department has become a severe necessity because of the number of fraudulent activities being caught by external auditors in the last decade. In some cases, companies are directed to create internal auditing departments by the federal agencies.

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