Internal Audit

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What is Internal Audit?

Internal audit is the review of the various operations of the company & of its records by staff specially appointed for the purpose. This review may be periodical or may be even continuous.

The Institute of Internal auditors defines internal audit as under

Internal auditing is an independent appraisal activity within an organization for the review of the accounting, financial & other operations as a basis for protective & constructive services to the management. It is a type of control which functions by measuring & evaluating the effectiveness of the other type of control. It deals primarily with accounting & financial matters but it may also properly deal with matters of an operating nature.Review: Igor Ristovski

Internal Audit is an integral part of internal control. It should be understood that internal control is not merely internal check or internal audit; it is a system of control as a whole.


Basic Principles of Establishing Internal Auditing

  • Internal audit should have an independent status in the organization.

  • Internal audit should be free from executive functions. Internal audit may help in formulating executive decisions but it does not take part in formulating the decisions.

  • It must have unambiguous & clear understanding of the objectives.

  • It can investigate any phase of the activities of the organization at any time.

  • The staff of internal audit department should be adequately qualified so that is working is success.

Objectives of Internal Audit

  • Evaluation of accounting & administrative systems & controls: Internal audit is concerned with ensuring effective & efficient system of accounting control, standard cost control & other administrative controls.

  • Safeguarding of business assets: It ascertains the accuracy, the integrity & the reliability of the financial & other records. It assures the top management that the accounts & the financial statements show a true view.

  • Compliance with established policies & procedures: It is concerned with reporting to the management as to compliance with predetermined policies, procedures & standards of performance.

  • Reliability of management data: It assures the top management that the accounts & financial statements show true & fair financial position.

  • Prevention & detection of fraud: It facilitates the prevention & detection of fraud & errors.

  • Making special investigations: It takes up special investigation at the special request of the management.

  • Review of Internal Control System: It reviews the operation of the overall internal control system & non-compliance to the notice of the appropriate level of management.

  • Suggesting improvements: If the internal auditor finds any inadequacy & weakness in the working of internal control in any area, he makes appropriate recommendations to the management for the improvement of the system.

Role of Internal Auditor

  • Internal Auditor appointed by the management generally directors.

  • The scope of work is determined by management.

  • Internal auditor is responsible to the management.

  • The scope of work of an internal auditor may extend even beyond the financial accounting & may include cost investigation, inquiries relating to losses & wastages, production audit, performance audit etc.

  • He has to submit the audit report to the management.

  • Format of report is not prescribed.

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