Internal auditing is a term which is meant for examining and analyzing the company activities related to its operations, payroll activities, Profit/Loss, Purchase/Sale, Revenue etc.
It is utmost important for companies to conduct internal audit to safeguard their records and it gives the future directions to them for taking their financial decisions. Another advantage is that it will give them the accurate expenses of their company and it also helps to detect the fraudulent statements, also show them where the money has been invested without any benefits.
Needs for conducting Internal Audit
- Corporate Laws: Most businesses need to comply with various corporate laws as non-compliance shall have adverse implications. Internal Auditor will be playing an instrumental role in bringing about good Corporate Governance.
- Risk Management: To review the various types of risks that businesses faces and help the top management in managing and mitigating these risks in a better manner.
- Proactive audit: Internal audits are now being conducted in proactive manner rather than reactive. It is very important that internal auditor must conduct the audit either before or immediately after the occurrence of transaction rather than conducting audit of the transaction after certain gap of time.
- Consulting nature: Internal audit approach has now become more consulting in nature. Each operational area undertaken for audit is required to be conducted by auditor who has specialized in that particular. Internal Auditor with multi-disciplinary skills will be preferred.
- Consulting Assignments – Mergers and acquisition, Frauds, Outsourcing etc: In view of the increasing global Competition and business processes becoming more complex, internal auditors are being given more and more consulting assignments such as active participation in merger and acquisition activity, cost restructuring, ERP implementation, fraud findings, co-sourcing, preparation of audit manuals, industry research for diversification of client business, bench marking etc.
This shows how the importance and need of auditing is increasing with the passing days.
Is it mandatory to appoint an Internal Auditor
According to UAE Commercial Companies Law, Federal Law No. 2 of 2015, every company shall appoint auditors who are registered under the Ministry of Economics for auditing their accounts books in UAE. Reassure Advisory is providing one stop solutions to cover each aspect of new businesses in UAE. It is mandatory for few Free zones and DED companies to submit their Auditing report annually.
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Advantages of internal audit:
- Via an internal audit,one can gauge company’s transparency and accuracy of financial transactions.
- It helps understanding the degree of compliance with corporate regulation and institutional policies.
- Internal audit provides an independent assessment of an organization’s financial and operational activities.
What are internal auditors responsible for
- Monitoring, analyzing and assessing the risks and controls of the organization.
- Reviewing the organization’s compliance with state and federal policies and laws.
- Making reassurances and recommendations to the organization or company’s owners or governing boards.
Role of an internal audit
- Compliance review
- Risk evaluation
- Business process analysis
- Management advisory
Functions of an internal audit
- Internal Audit is conducted for & on the behalf of the management.
- The objective of the Audit is to Assist the management to discharge its responsibility effectively.
- Auditor will be appointed by the management of the entity.
- Scope of work is defined by appointing authority.
- Report will be submitted to the management.
- Objective is to review Financial and Non Financial operations.
- Responsibility is to report on compliance of Accounting, Administrative controls and Financial procedures.
What happens during an internal audit
When an internal auditor comes into a company or organization, they analyze documents regarding the company’s risks, objectives and performance, as well as observe how particular strategies are being implemented. Experts recommend relying on outsourced auditors as they are better able to view the operations of the company objectively and without the bias typical of actual employees.
During the audit, skilled professionals who know what to look for will observe, take notes, review documents and interview employees. Auditors will often test employees’ knowledge of company objectives, safety standards and compliance rules.
Functional areas covered during internal audit
- Cash: Cash is one of the most sensitive areas; business cannot run efficiently if cash is not maintained properly. Money is procured with cost i.e. shareholders will be paid dividend; interest will be paid to debenture holders/bank/financial institutions etc…
- Bank: Bank statements should be compared with cheque folio & bank vouchers.
- Purchase: Purchases should be vouched against the invoices issued by suppliers.
- Sales: Sale invoice must be verified with the sale order issued by the purchaser company.
- Payroll: Salary must be paid as per the policy practiced by the entity after deducting Loss of pay, Provident Fund contribution, T.D.S if so applicable.
- Information Technology: The most sensitive area in case of Information is I.T Department. No confidential information of the company should be leaked out to others in any manner possible.
- Purchase Return: Goods must be inspected when it is purchased & if the descriptions is found unmatched with the purchase order issued or the quality of product is not as per the requirement etc… goods must be rejected on spot.
- Sales Return: Credit note must be checked with invoice issued to the purchaser.
- Stores: Stores inward to be tracked with the gate register maintained.
- Debtors and Creditors: Advances received from debtors are to be showed at liability side.
- Statutory Compliance: Internal auditor should check whether the entity has complied with all the statutory obligations as per The Companies Act 1956 or under any other special act if applicable.
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