Internal audit : meaning, objectives and advantages

Internal Audit: Meaning, Objectives and Advantages

Internal Audit: Meaning, Objectives and Advantages

Meaning: Internal audit is a review of operations and records undertaken within a business by specially assigned staff. It is a post-transaction review to evaluate the correctness of records and the effectiveness of operations on a continuous basis in an organization by the paying staffs. The term 'internal audit' has been defined as the independent appraisal of activity within an organization for the review of accounting, financial and other business practices as a protective and constructive arm of management.

It is a type of control which functions by measuring and evaluating the effectiveness of other types of controls. Internal audit deals primarily with accounting and financial matters, but it may also properly deal with matters of an operating nature.

The work of internal auditor is more or less the same as that of external or professional auditor. Being the employee of the organization, s/he has to see that there is no waste and inefficiency in the organization. An auditor has to ensure that the organization incurs liabilities in respect of its valid and legitimate activities. S/he has to make efforts to find out the weakness of the internal control and internal check system followed in the organization and suggest necessary improvements.

Many large organizations have a system of internal audit within the organization as a integral part of internal control. Internal auditing is a staff function rather than a line function and the internal auditor does not exercise direct authority over other persons in the organization.

Objectives Of Internal Audit

The objectives of the internal audit can be summarized as follows:

1. To verify the correctness, accuracy and authenticity of the financial accounting and statistical records presented to the management.

2. To confirm that the liabilities have been incurred by the organization in respect of its valid and legitimate activities.

3. To comment on the effectiveness of the internal control system and the internal check system in force and to suggest ways and means to improve these systems.

4. To facilitate the early detection and prevention of frauds.

5. To examine the protection afforded to company's assets and use of them for business purpose.

6. To identify the authorities responsible for purchasing assets and other items as well as disposal of assets.

7. To ensure that the standard accounting practices which have to be followed by the organization are strictly followed.

8. To undertake special investigation for the management.

9. To assist management in achieving the most efficient administration of the operation by establishing procedures by complying with company's operating policies.

Advantages Of Internal Audit

The advantages of internal audit are as follows:

1. Staffs remain alert because their work shall be checked by the internal auditor. So, accounting remains correct.

2. Internal audit helps to detect errors and frauds and provides suggestions to improve them which helps the management to take corrective action.

3. Internal audit detects the misuse of resources in time which helps to reduce unnecessary expenses.

4. Internal audit checks the efficiency of staffs which helps to increase the efficiency of them.

5. Internal audit checks the books of accounts, detects errors and frauds and helps in its correction which makes the act of final auditor easier.

6. Internal audit increases the morale of honest staff because evaluation of performance of any staffs will be made at any time.

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