When should a firm conduct an internal audit?
Whenever you feel weak or ill, you approach a doctor for a health checkup, and the doctor examines your whole body to find out the reason for the weakness or illness. Similarly when your business undergoes any challenging circumstances, it needs to be evaluated to find out the faults, this process is referred as internal auditing, through which a firm can detect the errors in their records or identify the department which is not working smoothly.
When should one conduct the internal auditing?
The firm can conduct internal auditing on the basis of circumstances prevailing within the organization or the firm can conduct it on a regular basis after frequent intervals say quarterly or half yearly.
Different circumstances where internal audit is required
Before inducing any investments: If you are planning to invite individuals or other companies to make investments in your firm, then they may be willing to know about the firm’s performance and efficiency, which can be provided in the audit report prepared before inducing investments, which will reflect all the required details to the investors.
When mistakes are detected: If you detect any kind of errors in your books or records, then you will have to conduct an internal audit in order to assess where that error occurred and to take correct measures to solve it immediately as soon as possible.
Irregularities in cash flow: If there are any irregularities in the cash flow management. i.e. sometimes the cost may be more than the expectations of the management which can cause huge losses, and affect the smooth flow of cash and profits. So to ensure the smooth flow of cash you may conduct an internal audit to control the unwanted flow of cash.
Introduction of new laws and policies by government: If the government introduces any new law or policies then there is a need to conduct an internal audit, to analyze which part of the department needs to be rearranged to comply with the new laws, for example; if the government increases or decreases the tax rates then that changes must be made in the accounting software as well as in all the records etc.
Before expansion of your business: If you are planning to expand your business, then you must conduct an internal audit to analyze whether the firm has adequate finance to expand, and also to identify which sections of the organization will need more workforce and to get an idea about the requirements of new assets for expansion.
When the competition increases: If there is an increase in the degree of competition, then it is a best course of action to conduct an internal audit to discover the hidden strengths of the firm and to formulate new strategies to face the competition and to acquire first mover advantages.
On a regular basis: A man who is very health conscious may conduct a health check up at a regular basis, similarly a business man who is concerned about his business can conduct the internal audit annually on a regular basis to continuously monitor the performance of his firm, which will help to detect any errors if occurred.
What if you don’t conduct internal audit on time?
Suppose you are the owner of a supermarket which has different branches around the world. And you decided to increase the sale of products by issuing new marketing strategies which provide the customers with more incentives and discounts, that induced them to purchase more, and the sales eventually increased. This resulted in a surplus in cash flow than expected that had a positive sign of growth. But on the other hand this surplus was a result of reduction in selling price of the product, which was a strategy unknown to others, and it was out of focus of everyone. This resulted in irregularities in cash flow, but still you ignored to conduct an internal audit believing that you were earning profits. But at last when it was noticed that the profit was not earned as expected, this affected the overall management system and caused huge loss. Whereas if the internal audit was conducted earlier, then you could have ascertained the effects of new strategies and its impact on the cash flow. This example reflects the importance of an internal audit and the circumstances where it should be conducted to formulate advance strategies to face any challenge.
CDA on conducting internal auditing in your organization
CDA provides one of the best and experienced teams to conduct internal audits, with complete knowledge regarding the prevailing laws and policies of the government and accounting principles. We always look up to the satisfaction of our clients, without any errors. We have the professionals who are well qualified and have best experience in accounting as well conducting audits. We are always ready to put our efforts together to find out the strategies to face the fiscal challenges of our clients.
Hope you have a clear idea of when a firm should conduct an internal audit. Still, have queries regarding internal auditing? Feel free to contact CDA. We are always there to build a good relationship with you and your business to understand it to the core and help in every possible aspect.