What is internal audit and how to conduct it

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

Checks should be carried out not for show, but to improve workflows.

What is internal audit

First, you need to figure out what is meant by this word. In the narrow sense, which is approved by law, it is an inspection of accounting statements for reliability. Any audit can be external with the involvement of third-party auditors or internal - with the help of our own resources.

An internal audit of accounting documents is required by any organization that maintains accounting. That is, the audit must be carried out by all businessmen, except for individual entrepreneurs.

In practice, the procedure seems to be obligatory, but not very: there are no clear regulations for the conduct, and there is no responsibility for evasion. So many are satisfied with the "Potemkin audit": they write everything down in the documents, but actually do not check anything (and in vain, but more on that later).

There are several categories of organizations that are required to conduct an audit in accordance with all the rules and report to the state. But the inspection is no longer entirely internal: it can only be carried out by audit companies or individual auditors included in the register of the Ministry of Finance. Such a procedure is mandatory for state corporations, investment funds, joint stock companies, banks and microfinance organizations, as well as firms with income of 800 million per year or with balance sheet assets of more than 400 million at the end of the year. The complete list is extensive (it can be viewed in), but does not apply to the overwhelming majority of businessmen.

So we will focus on the audit that is prescribed for most companies.

Why do you need internal audit

This is a good time to remember that auditing has a broader meaning.

This is not only about checking financial statements, but also about inspecting the activities of your organization as a whole. The numbers, of course, need to be given priority and priority attention. But if there is an opportunity to dig deeper, to dive into the processes, then it is better to do it.

The results of such an audit are not needed for presentation to the inspection authorities. Inspections are necessary primarily for business leaders to achieve several goals:

• Check the reliability of the reports and see how things really are with finances. Of course, if the work is carried out responsibly, you already know what's going on. But no one is immune from mistakes. An audit will make sure that everything is in order with the documents.
• Determine how efficiently the company and its divisions work.
• Identify and assess the risks that the organization faces while operating.
• Prepare to communicate with an investor or lender. The audit findings will eloquently demonstrate how the firm is doing.
• Find articles for savings.

What to check during an internal audit

There are no restrictions, but pay attention to these points:

• Financial statements. We have already discussed the importance of checking accounting documents, everything is clear here.
• Taxes. What and when is paid, are the securities transferred to the Federal Tax Service on time, are there any shortages, is the tax regime chosen optimally, and so on.
• Compliance with laws and regulations. Are all the processes debugged from the point of view of legislation and whether the inspectors, if they come, will not find violations. Moreover, it is worth remembering about all the inspectors - firefighters, environmentalists, and so on.
• Information Security. How documents and data are stored, whether employees are trained not to be attacked by intruders.

How to organize an internal audit

There are several basic steps.

Determine who will conduct the audit

The main condition here is independence. Let's say asking an accountant to check financial statements is weird for obvious reasons. He himself composed them. You need someone with an independent perspective. But at the same time, it is important that the person understands the issue that will be inspected.

Internal audit can be carried out by employees of the enterprise, a separate department, if there is one, or the manager himself. You can also hire a contractor.

Issue an order from the head

The paper should indicate the dates of the audit, indicate who conducts it and under what conditions.

Decide what you want from the inspection

Before an internal audit, you need to draw up documents. They record why the check is being carried out, that is, what goals you want to achieve. It is also worth prescribing who will do what, how and what the auditors will check, how they should present their findings. Do not forget to indicate by what criteria the performance of the inspectors will be assessed. This is especially important if a contractor is involved and you have to pay with him.

Proceed to check

Responsible persons check documents, talk with employees, do whatever is required of them.

Draw up an audit report

If we talk about an audit report based on the results of checking accounting documents, drawn up in accordance with all the rules, it should contain:

• the name "Auditor's Report";
• an indication of the customer - to whom the report will be provided;
• details of the audited company;
• information about the inspector;
• list of documents that have been checked;
• data on the work done by the auditors;
• information about detected violations;
• the date of the conclusion.

In general, you can be guided by this plan. Or arrange it differently, if this is a document exclusively for internal use.

Review the report and decide what to do next

If the audit is not carried out for show, the information received must be analyzed and understood how to be. For example, bring documents in line with laws or rebuild processes in an ineffective department.

However, it is important not to cut from the shoulder. It is necessary not only to study the report, but also to understand how and why the errors described in it could appear. It should also be borne in mind that sometimes auditors try too hard to find flaws and, as a result, find problems where there are none. In general, do not rush to punish and pardon without understanding.

How often do you need to conduct an internal audit?

The terms are set by the head of the company. In fact, it is necessary to proceed from the specifics of the company and its needs. For example, if the organization is small and there are few documents, and for verification it is necessary to separate some of the employees from their direct work, it is hardly necessary to conduct an audit often. Well, if it's a huge company, it might be worth doing inspections several times a year.