The importance of internal audit for a firm

Internal auditing is an activity that is independent and consultative to add value to the operations of the organization. Management can improve internal control with the help of an internal audit. It helps in identifying the weaknesses in the system and also provides an opportunity to rectify them. Internal auditors deal with issues of importance to the continued existence and prosperity of any organization. An internal audit is conducted at a specific interval to check if a company follows the internal protocols and standards. Managing audits internally helps the management of the organization identify if anything is wrong with the organization. An internal audit manages risk and monitors the effectiveness of a company's internal controls and governance.

Internal audit has faced numerous challenges as a result of global economic conditions and technological advancements:

The media and government have set high expectations even though it is easy to follow the regulations. Internal audits do look at the financial controls, but, they do it partially. The internal audits spend most of their time looking into what we call the regulatory controls and the operational controls. The internal audit department should be able to justify its expenses and show how they directly fit into the company’s bottom line. If the department fails to do that, then the internal audit department won’t be able to exist anymore. Internal audits are a major part of an organization’s risk management strategy. They are used to handling risk by having internal control over financial records and maintaining the financial stability of their organization. Online security must be monitored so that the organisation can ensure that information is kept confidential and accessible only to authorised individuals who have been granted permission by the organization's authorities.

Read More: What Are the Steps Involved in a Risk-Based Technique for Internal Audits

There are multiple types of complications or problems an internal auditor may come across while performing an internal audit:

• The auditors may not be well prepared:  At the beginning of a year, when the audit dates are published, auditors promise themselves to be well prepared for the audit and also to execute it differently from that of last year. But as the audit dates grow closer, little do they realise that they aren’t well prepared for the audit. When the audit is conducted for the first time, it generally turns out to be quite difficult as there is no checklist and they may not have adequate documents on the basis of which the audit should be conducted. One must carefully prepare for an audit by allotting time in your work schedule for preparation.

• Handling difficult auditees: To get the best out of any audit, the auditor must interact with the owner of the process while reviewing his processes and procedures. In some cases, you may come across auditees who constantly exhibit difficult behavior. They may keep on behaving rudely with you, and neither will be interested in answering your questions nor in the audit itself. In such cases, the audit should be stopped immediately and the audit programme manager, the auditee’s supervisor, or the company president should be notified. There is no benefit from an audit process where the situation is aggressive.

• Preparation and Announcement of audit reports- An auditor must try to publish an audit report within one week of the internal audit has been performed.  The audit report must be generated to communicate audit findings to managers so that they can make the appropriate decision. A standardised audit report must be created that can be used by all the auditors. These audit reports can be in the form of "fill in the blanks". An auditor should make sure not to create a report with checklists on it as checklists do not exhibit proper information. The preparation of audit reports is one of the hectic tasks involved in the audit processes, as it must be as per the regulations.

• Lack of management support: The audit manager must make sure that the senior management understands the importance of auditing. One must communicate the cost of audit observations with the management and also the greater cost of not responding to them. Sometimes the superiors may not consider internal audit as an important aspect and there may arise a conflict of interests which may result in disagreements. Such a situation should be avoided to maintain a healthy organisation while performing the audit.

• Lack of professionalized and skilled auditors- It has turned out to be a difficult task to find creative auditors with professionalized experiences who can perform the internal audit in the best possible manner. This is one major challenge regarding internal audit. Auditors with a flexible mindset are hard to find these days, hence a firm must always try to stick on to one perfect internal auditor which may fulfill all their expectations.

• Outdated technological resources- As the technological advancement is on high pace, the internal auditors must ensure if they have the right tool and technology to perform the activity. The advancement in technology has resulted in the rise in demand for accurate results and reports of auditing and the internal auditors must ensure to meet this demand. Along with that they must be well trained to use such technologies in their job.

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How can CDA help?

CDA, being one of the well-known accounting and auditing firms in Dubai, is always ready to render its professionalised services to the clients who are in need of them. CDA provides a bunch of services including external and internal audit, AML compliance services, VAT registration and many more. CDA always assures you quality services with a team of experts who have been working with the Big 4s. To know more about the services provided by CDA, approach us soon.