Importance of an Internal Audit & How to Decide the Frequency of Internal Audit in Your Organization
What is an Internal Audit?
An internal audit is a process through which a company assesses its internal control and checks how well it manages its accounting process while observing its rules and regulations designed to add value and improve the operations of a particular organization. It helps to maintain precise and timely reporting. An internal audit is a group or department tasked with furnishing an independent and impartial review of the business organization and the processes. The character of an internal audit is to inform the governing bodies of an organization about the risk factors and operational effectiveness. The ultimate goal of an internal audit is to recognize weaknesses within the organization so that they can be fixed quickly to prevent the organization from further harm.
Why does a company need an internal audit?
An internal audit is important for a company as:
It provides perceptive insight- You cannot audit your work without having a conflict between the private interest and the official responsibilities. An internal audit does not have any responsibility to achieve this accurate and deep understanding of the work. In situations where small companies cannot afford to build up an internal audit team, the companies can cross-train the employees of one department to audit the other department and vice-versa or they can approach the auditing firms to get the firm audited.
It improves operational efficiency- By evaluating the company's policies and procedures, one can make sure that they are doing what the company policies say, and that these procedures are satisfactory in making your business risks less severe.
Assess risks and safeguard assets- An internal audit team can help the management by pointing out the risks. The team will also help the company track any changes that have been made to the company environment and make sure to lessen the severity of the risks.
Evaluate organizational control- Internal auditing is good because it helps in the betterment of the environment of the company by evaluating the efficiency and utilizing the effectiveness.
Scrutinizes cybersecurity environment- Internal audit scrutinizes your cybersecurity environment and makes sure about their security following the organizational policies.
What are the frequent intervals in which internal audits must be performed?
In general, there are no rules on how frequently an organization must perform an internal audit. Also, there are a variety of other factors that depend upon how an organization needs an internal audit. The management system does not establish a specific frequency. Nor do they mention that all processes should have an annual internal audit. The firms must at least conduct it once a year to get an idea about what is happening within the firm.
The frequency of internal audits can be determined based on the following factors:
Internal audit based on the complexity of the processes:
High-risk processes should be audited frequently that is, quarterly or twice a year. Low-risk processes can be audited once a year as they may not be so potential for the firm.
Based on the maturity:
The process that is well established and efficient can be audited once a year. The processes that are newly established need to be audited more frequently say quarterly, as they may need continuous monitoring to detect any flaws in it.
Based on history:
Processes that have bad past experiences of instability need to be audited more frequently such as quarterly or twice a year with those processes which are having trouble in achieving the targets within the deadlines should also be audited frequently.
Based on the organization and client:
Some companies perform internal audits to cross-check the quality of the products produced by the companies with that the expectations of the company. Such companies should perform more frequent internal audits, such as on a weekly or monthly basis to monitor the product quality and the manufacturing methods adopted.
The financial stability of the firm:
If the firm has a smooth cash flow and has an adequate fund at its disposal then the firm can opt for frequent audits as per its requirements otherwise it must rely on reducing the frequency of the audit or approach auditing firms which are cost efficient
Changes in tax policy or new laws:
If there are any changes or if any new tax laws are introduced then the firm must conduct an internal audit frequently after the introduction of such new law to ensure if they are on the same page with the new law and also to identify the changes that they have to make within the firm to comply with the law.
What if the audits are infrequent?
Operational, financial, and security risks can be for your firm as a result of infrequent internal audits. If you avoid or ignore conducting the internal audits frequently you won't be able to identify the weak spots of the organization it will also affect the morale of the staff and the employees and it may have a drastic effect on the organization.
Internal audit with CDA
The frequency of an internal audit plays a major role for a firm. It decides the fortune of the firm and it also helps to maintain credibility and boost the morale of staff as well as build the confidence of clients. You can decide the intervals of the internal audit by getting advice from our experienced team who always provides the clients with a strategic outlook to tackle various issues. To have a better idea and to conduct a cost-efficient internal audit, approach CDA to know more about us and feel free to contact.