What is the importance of an internal audit for your business
The business environment today has become increasingly competitive. and risky, given the complex regulatory framework they need to follow. Every business is exposed to a certain level of risk over the course of its life, but what really differentiates a company from its competition is how they deal with the potential threats. A key strategy to ensure good governance over the business activities and keep the stakeholders well-informed is an internal audit.
What is an internal audit?
An internal audit is an activity that assesses risk management and ensures internal controls are operating effectively. It deals with the reputation of the company, cybersecurity, management of processes and financial risks. In today’s complex business environment, it is essential that your company is safeguarded from these threats. Here are the seven biggest reasons why an internal audit is important for your company.
1. Assess internal controls
Conducting an internal audit helps review the policies and procedures so you can ensure that the operations of the company are in line with the regulations. The existing processes also need to be able to mitigate any potential risks that the company may face. An annual internal audit continuously monitors the existing processes and lets you assess the effectiveness of these internal controls. Based on the findings, you can make recommendations on how they can be improved.
2. Identify potential risks for fraud
Small to mid-sized companies are prone to fraud and theft just as much as large companies. One of the key benefits of an internal audit is that it ensures a company has proper governance so that there is no risk of fraud. Some types of theft that can occur within the company include, misuse of the company card, tampering of checks or not accounting for customer payments. With the help of an internal audit, you can create a system of checks and balances to reduce the misuse of company resources.
3. Improve efficiency
Internal audits can be used to measure the operations of the company, rather than its finances. This is also known as an operational audit. It makes sure that the operations of the business are functioning at its maximum efficiency. When the operations of the company are inefficient it can lead to high overheads. The internal audit identifies opportunities to improve operations and lower costs. With a focus on improving the processes of the company, the organisation can be more dependent on processes rather than the people.
4. Ensure compliance
When evaluating the company’s internal controls, the business can ensure corporate governance and ethics in all of its accounting processes. This involves ensuring that the operations are in line with the rules and regulations set forth by the government and other public entities like GDPR. Compliance rules are constantly changing so it essential that the company conducts an annual audit to avoid any costly fines in the future. This regulatory compliance is also a factor that is assessed in the external audit. Hence, performing this check during the internal audit can help identify any problems before they are discovered in the external audit.
5. Improve investor confidence
The role of the internal audit is to assess all the internal controls and highlight any potential problems that exist within the company. The internal audit team reports its findings to the executives who can then make decisions based on the results. Conducting an internal audit improves confidence among the investors of the company as they are assured that the management is taking the necessary steps to run the company in the most effective way possible.
6. Protect the computer network
With the large amounts of data generated by companies on a daily basis, the safety of technology plays an important role. Regular internal audits can detect any vulnerabilities in your computing system that would put the financial data at risk. It can also help the organisation decide if the existing layer of protection is sufficient or if there is a need to improve the security protocol for the computer system with a multi-layered approach. Cyber fraud is one of the biggest threats to accounting firms since they store large amounts of their client’s confidential data.
7. Quality check
During the internal audit, the assurance team plays a vital role in ensuring that the accounting processes and corporate governance is in place. The assurance team ensures that the processes of the company are designed in the most effective way possible and are in line with the company’s goals. It works closely with the consulting team who provide recommendations on how these processes can be further improved to achieve maximum productivity.
What is included in an internal audit?
An internal auditor ensures that the firm implements the best practices that help the organisation operate in a smooth and efficient manner. Here are some of their key duties:
- Identify risks- The main job of the internal auditor is to look at the processes of the company and identify any key risks or threats while anticipating the future needs of the business.
- Manage risks- Once the risks have been identified, the next step is to work with the risk management team to improve the effectiveness of the internal controls.
- Assess operations- This is also known as the operational audit and involves looking at specific operations in each department and finding ways to improve them.
- Assurance- The assurance team works closely with the auditors to ensure that the existing operations make the best possible use of the company’s resources.
The internal audit is essential for companies of all sizes as it looks at the day-to-day activities of the business and identifies ways to minimise risks and optimise resources. This is important because it can help your company save time and money and reduce the risk of fraud. Alternatively, an internal audit ensures the company adheres to compliance laws which can help avoid fines and remove any potential for errors in the external audit. Many companies today use technology like Artificial Intelligence to make the audit process more efficient. An annual internal audit is an investment for companies but it will pay off in the long run.