This blog is written by Mr. Anwar Ahmed Gondal, Assistant Manager, Internal Audit. Please read this blog and provide your comments.
Internal audit can play a vital role in improving the performance of a company. Internal auditors assist companies in identifying key risk factors. This enables the company to anticipate potential future concerns as well as identifying current weaknesses. It also enables a company to identify processes and a control that is not working effectively and allows an opportunity to improve on these. The role of internal audit is to provide assurance that a company’s risk management, governance and internal control processes are operating effectively. Internal auditors must be independent from the operations they evaluate and report to the highest level in a company – senior managers and Board of Directors or the audit committee. Internal auditors work with management to review systems and operations. These audits identify how well risks are being managed by the company and whether the right processes are in place, and whether procedures are followed. Internal Auditors evaluate the controls a company has in place. They also identify areas where improvements might be made and where procedures might be done more efficiently.
Benefit of Internal Audit
- PROPER ACCOUNTING SYSTEM
- BETTER MANAGEMENT
- PROGRESS REVIEW
- EFFECTIVE CONTROL
- ASSETS PROTECTION
- DIVISION OF WORK
- NO ERRORS
- FIXING RESPONSIBILITY
- TO BE EXTERNAL AUDITING
- NO FRAUD
- PERFORMANCE IMPROVES
- PROPER USE OF RESOURCES
- STAFF Alert
LIMITATION OF INTERNAL AUDIT
- INCOMPETENT STAFF: The limitation of internal audit is that audit staff may be incompetent. The purpose of internal audit fails to help the management. There may be lack of experience and training on the part of internal audit staff.
- STAFF SHORTAGE:The limitation of Internal Audit staff shortage. There may be need of realistic audit staff to scrutinize the record, The shortage of staff is difficult to get the benefit of internal audit.
- TIME LAG:The limitation of internal audit starts when there is the time lag between recording and checking entries. The accounting and internal audit must go side by side with a minimum time lag.
- EXECUTIVE FUNCTION:The limitation of internal audit is that the internal auditor may be linked to executive function. In this case, he cannot examine the accounting books and other records. He cannot find out his own weaknesses.
- ERRORS: The drawback of internal audit is that there may be errors in books of accounts. It depends upon the capability of internal audit staff. If audit staff is knowledgeable there is less chance of errors. In case of poor audit staff, there is no assurance that audited accounts are free of errors.
- RESPONSIBILITY:The limitation of internal audit is that the management may not feel their responsibility in completing the audit formalities. The audit staff may give suggestions for the proper working of the business. The top-level management may not pay attention to suggestions. In this way, the audit work cannot help the business.
- DUTIES:The limitation of internal audit is that there may not be proper division of duties. In this case, the internal auditor is unable to fix the responsibility for the negligence of duties. The management must be aware of the division of duties. The audit work can point out the weakness of business employees; otherwise, whole arrangement goes wasted.
Anwar Ahmed Gondal