An internal audit is a procedure that involves a systematic evaluation of a company’s accounting and reporting processes, along with its corporate governance and internal controls. This type of audit seeks to determine if there are any flaws or weaknesses that could affect the accuracy of a company’s financial reports, to correct them before an external audit is conducted.
An internal audit can be done by either an external firm or by an employee of the company. Considering that this type of audit is particularly relevant for managers to be aware of any significant weakness in the business’ internal processes, it is in their best interest that the person conducting the audit is sufficiently capable to do so and has enough access to gather the information required.
What Are the Steps to Conduct an Internal Audit?
An internal audit usually involves three key steps:
Gathering Phase – At this stage, the auditor collects all the necessary information from different departments of the company including their internal policies, procedures, manuals, guidelines, internal documents and other key information that can have an impact on the company’s accounting and financial reporting process.
Analysis Phase – Now the auditor has to analyze different aspects of the company’s internal functioning and how its processes flow through the organizational structure. Additionally, the auditor must evaluate the physical evidence vs. the reports issued by the business to make sure there are no omissions or errors, based on his observations.
Reporting Phase – Finally, the auditor must communicate his findings to either the Senior Management, the Board of Directors, or both. At this stage, the auditor will usually draft a comprehensive report that states any potential issue he could have identified during the auditing process.
How Can an Internal Audit Benefit a Company in Singapore?
A recent amendment to the Singapore Exchange Limited (SGX) Listing Rules has mandated all listed companies to establish and maintain an effective internal audit function in line with the country’s push to becoming a leading accountancy hub in the region. As such, the demand for reliable internal audit services has risen in the past two years.
Here are 3 main benefits associated to regularly conducting internal audits:
They ensure the accuracy of internal reports.
Internal audits can be a senior manager’s greatest ally, as it will assure him that the reports he constantly looks at and analyses to back his decisions are accurate and reflect the reality of the business.
They help in reducing risks.
Internal audits reduce negligent and fraudulent behaviour within the company’s organizational structure as the process seeks to identify any potential misconduct or wrongdoing that may be affecting the firm’s financial wellbeing.
They improve the firm’s credibility.
A company with strong internal controls enforced by internal audits shows its investors, creditors, suppliers, clients regulators and shareholders that it is committed to transparency. This usually entitles the company to a higher standing in terms of its credibility and image.
In summary, while all audits share the common objective of determining how accurate a company’s financial reports and accounting procedures are, the difference between an internal and external audit boils down to its nature, scope, and applicability.
Strategically sourcing internal audit function does not only reduce a company’s expense but also guarantees optimal efficiency for any organisation seeking professional internal audit services in Singapore.