Internal audit is a systematic activity with the purpose to provide independent assurance along with adding value and enhancing the company’s processes. It helps companies and organizations in achieving their objectives. It involves critical checking internal systems, management performance and financial activities of the company. Importance of internal audit for small and medium sized business is growing as it ensures effective and efficient use of resources in the businesses while ensuring risks are minimized to an acceptable level through risk based internal audit approach. Internal audit services cover a wide range of internal audits such as financial, VAT & compliance, operational, information system and special investigation.
The ultimately purpose of internal audit for the organization is value addition. In internal audit service, it is important to follow its core principles i.e., Independence, Objectivity, Proficiency, Care and Quality. Below are some of the examples where internal audit can help the following:
Further internal audit also helps in interpreting fraud risks and to determine whether fraud risks need special consideration when conducting an internal audit. Internal audit also helps in assessing the potential for fraud red flags and recommend controls to prevent and detect fraud. Internal audit also evaluates the effectiveness and contribute to the improvement of risk management processes.
Financial internal audits cover accounting and finance department of the company. The accounting and finance department in a company typically include account receivable, account payable, payroll and compensation, fixed assets, cash & treasury management, financial reporting. Depending on size of the finance and accounts department of the company, financial internal audit can be planned as follows: One separate internal audit engagement covering only one areas or section of accounting and finance department is conducted. For instance, an internal audit engagement scope covers only account payable and internal audit report is issued only on account payable. In small businesses, it would be more appropriate to cover all the accounting and finance department in one internal audit engagement instead of separate section wise audits.
Financial internal audits also cover testing of design and implementation of internal controls on accounting and finance department.
Operational internal audits evaluate effectiveness and efficiency of operational side of business along with risk assessment. This involves more detailed analysis of processes and procedures in the business operations of the company and recommend improvements to reduced operational cost, risks management, internal controls and processes in operations.
These days information systems play very crucial role in any the success of any business and therefore internal audits of information systems are very essential. These audits are conducted to evaluate the internal control on information systems and testing IT operations, disaster recovery and business continuity. This ensure that standard practice and relevant SOPs are being followed, information and report generated are correct & reliable, threats are identified, and managed, adequate controls exist on information security & confidentiality.
This type of internal audits is carried out to evaluate and assess the various aspects of project under consideration. Typically, an internal audit of a project may include financial, operational, Information system and compliance aspects in detail.
Internal audit may need to investigate any suspected fraudulent activity, embezzlement, violation of relevant law and regulations.
There audits are conducted to check the level of compliance with internal policies & procedures and external rules & regulations. During the last few years significant laws and regulations has been implemented by UAE relating to various aspects. Further there are law and regulations for main land and free zone.
Internal audit charter is main policy documents which defines purpose, authority, responsibility of internal audit function whether insourced or outsourced. This document is approved by audit committee or by board members and this provide direction to day-to-day activities of internal audit function.
For each organization with a well-established internal audit function, internal audit plan is prepared on annual basis. Generally, this annual internal audit plan is prepared at the start of financial year and this list all the internal audit engagements, resource allocation and timeline for each engagement, risk assessment, annual budget for the department pertaining to that financial year.
During the execution phase of each engagement listed in Internal audit plan the followings are performed:
It involves initial risk assessment to be done at the engagement level, review of last audit report(s), if any, communication with the client about the scope of audit, initial audit meeting to discuss and gather information of important areas.
It involved development of audit program, Internal control testing, detailed execution of audit such as details testing and review of transactions, documents, systems, polices and SOPs, preparation of working papers and corroboration of draft audit finding through further investigation and discussion with the auditee.
All findings from the field work are compiled in a draft report. For each finding, corresponding implications and recommendations are included and if necessary, relevant annexures are attached with the report. Draft report is issued to client with the request and deadline to provide response to the findings in the report. Once findings wise response is received from auditee, it is incorporated in the draft report and final report is issued to the Audit committee/owners.
Follow-up audits are conducted to see if the issues identified and reported in final audit report are resolved and to see if the necessary corrective actions have been taken.
At Virtual Accountants LLC (VA), Our certified Internal Audit experts take care of the responsibilities allocated to them by our clients to improve their operations by identifying, classifying, and mitigating the risks to which the client has exposure as per the standards issued by IIA. Internal auditors, to improve the control environment and to add value, are required to suggest improvements as per industry standards and practices. Our team of internal auditors monitors the entity’s control and governance environment with high efficiency and effectiveness and have demonstrated improvements, on several occasions, in entities processes, control environment and governance structure. We can also assist our clients with designing internal audit charter, risk based annual internal audit plan, audit programs. For small and medium size businesses outsourcing internal audit function is cost effective approach as it allows access to better experience and expertise. Contact us if you need any assistance in this regard.