Meaning and definition of Internal Audit
Internal audit can be defined as the evaluation, monitoring, and analysis of activities associated with the operations of a company, also counting the business structure, information systems, and employee behavior. An internal audit is designed in a way to review the activities performed by a company to recognize the probable threats to the company’s health and profitability, in addition to making suggestions for reducing risk related with those threats so as to mitigate the costs.
As explained by Investopedia, the internal audit forms an important component of an organization’s risk management for they are helpful to the companies in identifying issues before they take the form of substantial problems. Moreover, these are also helpful in identifying the risky behavior by individual employees and threats created by external parties, like attempts to steal intellectual property.
Objectives of Internal Audit
The key purpose of internal audit is helping the management in addition to keeping proper control over business activities. Other important objectives of internal audit include:
- Determining the reliability and integrity of information through the evaluation of internal control systems and the integrity of financial and operating info generated from those systems.
- Determining the compliance of company operations existing with procedures, policies, laws and regulations.
- Determining the safeguard of assets in addition to verifying the existence of these assets.
- Appraising the economy and efficiency of resource utilization, including financial and physical resources.
- Reviewing operations and programs for consistency with well established management goals and objectives.
- Assisting members of an organization in performing their responsibilities effectively and successfully by providing them with appraisals, analysis, recommendations, and other related info concerning the activities under review.
Advantages of Internal Audit
The key advantages of internal audit include:
- Internal audit leads to detection of errors which are rectified during external audit.
- There is no additional cost involved in the process as it is performed by the company employees.