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The importance of conducting an internal audit
Jul 13, 2022 4:56:00 PM4 min read

The importance of conducting an internal audit

The incessant activity that exists in companies makes it necessary to constantly supervise, through an internal audit carried out by administration personnel, the different operations of the financial, accounting, and administrative areas that are carried out day after day to sustain business profitability and productivity.

For the operation of a company, an administration that works to meet the objectives for which it was created is required; however, it is also important to create a body that monitors its operations and the actions of the administration itself.

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For this reason, the work of supervision is recognized everywhere and is becoming increasingly important given the need to protect executives from mishandling what the administration does, and the need to have a body in the company to be in charge of guaranteeing the veracity of its legal and financial activities.

 

What is an internal audit?

Internal audit is an independent and objective evaluation activity to add value and improve the accounting, financial and administrative operations of an organization, helping it to meet its objectives, by evaluating and improving the effectiveness of its processes, and thus providing effective service at the highest levels of administration.

The internal auditor carries out his work within the framework of compliance with international standards for the professional practice of internal auditing, which gives certainty and confidence to the Board of Directors that his work and its result will be of value and applicability. for the improvement of the entity's controls and results.

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The purpose of the internal audit is to provide a constructive assistance service to the administration, to improve the conduct of operations, and obtain a greater economic benefit for the company or a more effective fulfillment of its institutional objectives.

 

Importance of conducting an internal audit.

The need to carry out an internal audit is evident in companies, to the extent that they increase in volume, geographical extension, and complexity, making direct control of operations by management impossible. In this way, the administration, finance, accounting, and operations processes can be regulated frequently by personnel specialized in the accounting area.

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There are three types of internal audit approaches, used in combination or separately:

  • Administrative audit: reviews and evaluates the methods, systems, and procedures that are carried out throughout the administrative process.
  • Operational audit: evaluates the efficiency with which human, material, and financial resources are carried out. It favors the increase of the investment reducing costs.
  • Financial audit: the effectiveness of administrative and operational audits allows the review of financial information to yield positive and scalable results.

In general terms, we have explained why it is necessary to carry out an internal audit in growing companies and what the most common types of audits are carried out. Now, what specific benefits your company from doing an internal audit?

  1. It optimizes processes in the administrative, financial, and accounting areas.

Performing an internal audit allows plans, company policies, internal control and processes to be carried out satisfactorily. If there were any difficulties or problems in these processes, they would be revealed to be resolved later.

  1. It financially protects companies.

It protects companies from fraud and unnecessary expenses that may arise when unprofitable business is carried out. In this way, the audit anticipates, as if it were a danger alert, the financial risks that could come from poorly executed projects or poorly carried-out actions, providing viable guidelines to counteract their effects.

  1. It favors the circulation of relevant information for companies.

It favors that the internal means of registration, control, and communication transmit reliable, adequate, and timely information at the different levels of the company, responsible for its proper functioning.

  1. It supervises and controls the employees' performance.

It supervises the individual tasks of each employee so that they are carried out on time. Part of the correct functioning of a company, in addition to the clarity with which the objectives and strategies are defined by the executives, is the daily performance of the employees in the different tasks of each area, since the level of productivity that they achieve also depends on them.

  1. It allows evaluating the economy through the resources used.

And finally, among the main advantages of carrying out an internal audit, we can find being able to evaluate the economy of a company, according to the use that is being made of the resources it has month by month, year by year.

Internal auditing is an activity that cannot be dispensed within organizations, due to the benefits it can bring to their administrators, by preventing inconsistencies in procedures, policies, and controls, allowing them to optimize the protection of their assets, operations, and, consequently, development, growth, and financial results.

 

 

 

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